Abu Dhabi, UAETuesday 2 June 2020

Bank of Japan helps fund small businesses during coronavirus pandemic

The world's third-largest economy has sunk into recession, battling stagnant consumption, a collapse in tourism and plunging exports

Japan's central bank has offered new economic stimulus to help small firms struggling with the economic devastation wrought by the coronavirus outbreak. AFP
Japan's central bank has offered new economic stimulus to help small firms struggling with the economic devastation wrought by the coronavirus outbreak. AFP

Japan's central bank said it will provide $280 billion (Dh1.02 trillion) to banks for financing small and medium-size businesses battling economic hardships brought on by the coronavirus pandemic.

The Bank of Japan will start providing funding to the banks in June, it said on Friday. The offer for zero-interest and unsecured loans comes on top of earlier measures, such as $187bn for purchasing corporate bonds and commercial papers.

It has also announced $234bn financing for private debt.

The world's third-largest economy has sunk into recession, battling stagnant consumption, dwindled tourism and plunging exports.

Central banks around the world, including the US Federal Reserve, have been making similar moves.

The Bank of Japan's policy board decided unanimously to continue all measures until March next year.

The bank has sought to send a message of financial stability by lifting the ceiling on the purchase of government bonds to maintain financial fluidity.

It said it will continue to monitor the Covid-19 situation and carry out additional measures, if needed.

“There is little doubt that the Bank of Japan will maintain an unequivocally dovish stance,” said Hayaki Narita of Mizuho Bank.

The bank said that Japan is facing “a triple whammy of negative demand shock,” on top of the outbreak, the postponement of the 2020 Tokyo Olympics until next year, a recent tax raise and trade tensions between the US and China, Japan's main trading partners.

Japan's long-term interest rates are already at zero. The short-term interest rate is negative 0.1 per cent.

A state of emergency requesting people stay home and work remotely has been lifted in most parts of the nation, though it remains in place in Tokyo.

Dozens of bankruptcies have been reported as a result of the virus outbreak. But the unemployment rate, although rising slightly, has not shot up so far, unlike the US and some other nations.

Japan has long suffered a labour shortage. Major Japanese companies tend to offer “lifetime employment” in principle and do not resort to layoffs as easily as their Western counterparts. But analysts have said tough times lie ahead.

Updated: May 22, 2020 01:25 PM

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