The cash balance in the Japanese economy hit 543 trillion yen in May, hitting a record high for the second month in a row, as the central bank injected more liquidity to cushion the blow to businesses and to consumers by the coronavirus pandemic.
Armed with a series of lending programs designed to encourage commercial banks to increase lending to cash-strapped businesses, the Bank of Japan is expected to continue expanding its balance sheet to mitigate the fallout from the health crisis, analysts said.
“The Japanese economy will likely be in crisis mode for at least the rest of the year. It would be very difficult for the BOJ to slow the pace of money printing, ”said Mari Iwashita, chief market economist at Daiwa Securities.
The base money balance, or the amount of cash in circulation and deposits at the BOJ, stood at 543.4 trillion yen ($ 5 trillion) at the end of May, up 2.7 percent from compared to the previous month, according to central bank data on Tuesday.
As part of the monetary easing measures taken in April, the BOJ expanded a lending scheme created in March and pledged to pay financial institutions 0.1% interest on borrowings and business loans. This decision resulted in an increase in the number of regional banks participating in the program.
In May, the BOJ also unveiled its own version of the US Federal Reserve’s “Main Street” lending program to funnel nearly $ 280 billion to small businesses affected by the coronavirus and prevent the economy from sinking deeper into the economy. recession.
While the BOJ’s aggressive monetary measures are seen as key to tackling the crisis, they complicate its long-standing efforts to shift its policy focus away from the pace of money printing towards interest rates.
After years of massive asset purchases that failed to stimulate inflation, the central bank switched to a policy of targeting interest rates in 2016. Controlled by the yield curve, it guides short-term rates to minus 0.1% and long-term bond yields around 0%.
The Japanese government lifted the national state of emergency last week. But the economy is on the verge of a deep recession as the pandemic has disrupted supply chains, affected global and domestic demand and forced many businesses to close.
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