TOKYO -- The Bank of Japan on Friday outlined a new loan facility to banks lending to projects or companies tackling climate change, as the country tries to speed up its shift to clean energy and hasten efforts to reduce emissions.
The new climate lending facility will allow the central bank to lend to commercial banks at zero interest rates for up to one year. The loans will be renewable under the facility, which is scheduled to last through fiscal 2030.
As an incentive, the BOJ will ease the negative interest rates charged to banks on funds that the central bank holds.
The program has turned out to be significantly more substantial than some economists had anticipated.
"Judging from the program outline, the BOJ intends to undertake a major climate financing program," said Hideo Kumano, chief economist at Dai-ichi Life Research Institute.
The move came after the central bank said on June 18 that it would introduce the new facility this year. Specific details will be hammered out by autumn and the program will begin by the end of the year.
The program is intended as a successor to the outgoing facility for promoting growth-supporting loans, which is due to end in June 2022.
Under the growth-supporting lending facility, the BOJ has provided 0.1% loans for up to four years to banks that have financed projects that are deemed to contribute to economic growth. The facility has an outstanding balance of some 7.5 trillion yen ($68 billion) in loans.
Economists say that the BOJ is moving in step with Prime Minister Yoshihide Suga's government and its clean energy push. The government intends to ban a sale of new gasoline-powered cars by 2035 and aims to achieve carbon neutrality by 2050.
The Suga government has laid out a broad range of incentives to help grow industry around clean technology. Incentives are offered not just to corporate borrowers but also to venture businesses. The BOJ's new climate facility could be made available to a broad range of investments, said Kumano.
The issuance of green bonds by Japanese companies has been on the rise, reaching almost $10 billion last year. But the amount still pales in comparison to those in the U.S. or Germany. The BOJ's move is expected to help accelerate Japan Inc.'s transition to clean technology and make the country a leader in the climate field.
Meanwhile, the BOJ decided the same day to keep its main policy levers unchanged, including short-term interest rates at minus 0.1% and long-term rates at around zero.
A separately released quarterly outlook report showed that the bank's nine policy board members expect the economy to grow 3.8% in fiscal 2021, down from April's estimate of 4.0%, and 2.7% for fiscal 2022, up from 2.4% predicted in April.
More noteworthy was a revision to the projections for core consumer inflation.
The policy board members now project inflation of 0.6% for fiscal 2021 instead of 0.1% as predicted three months ago. For fiscal 2022, inflation is projected at 0.9% instead of 0.8%. The sharp upward tick follows a spike in commodity prices amid a global economic rebound from the coronavirus crisis.