Bank of Japan takes slow lane on paring Covid-19 aid

Bloomberg

The Bank of Japan (BOJ) ended the second year of the pandemic in a very different place to other major central banks.
While the Federal Reserve and the Bank of England this week took aggressive steps to pull back from crisis aid, Governor Haruhiko Kuroda and his board slow walked it, extending assistance to struggling smaller businesses for another six months and paring back help for bigger firms from April.
In a press briefing after the decision, Kuroda acknowledged that his central banking peers were moving at a faster pace, but rejected the idea that those moves would influence the BOJ. After years of massive monetary aid that’s failed to spur faster inflation in Japan, a widening policy gap leaves the governor with a lot of unfinished business as he heads into the final stretch of his tenure. “Each country decides their monetary policy seeking stability in their economy and prices,” Kuroda said. “It’s only natural that there’ll be directional differences.”
While other banks are set to continue normalizing policy in 2022, the communication task faced by Kuroda in his last full year at the helm could get trickier as Prime Minister Fumio Kishida starts to consider replacements for the governor after a summer election.
“Once Kishida is done with the national election probably in July, the successor of Kuroda will be a huge topic for the market,” said Kyohei Morita, chief Japan economist at Credit Agricole Securities Asia.
The decision by the BOJ underscores the different dynamics it faces as it struggles to stoke inflation even as prices surge almost everywhere else across the globe, fuelled in part by pandemic stimulus settings.
Those overseas inflation concerns have prompted the BOE to hike rates and the Fed to end its bond-buying program sooner and signal three rate hikes next year. The ECB is also winding down emergency measures.
All now see inflation as a bigger threat to their economies than the virus.
In Japan, a far weaker price pulse is enabling the BOJ to continue its pandemic support and stick to a generally more cautious national view over Covid and its omicron variant.
The BOJ said it will keep in place until the end of September incentives that encourage banks to lend to smaller businesses hurt by the pandemic using funds provided by the central bank. The lending facility had been scheduled to finish at the end of March.