BOJ winds back stimulus but extends support for small firms

The Bank of Japan on Friday said it would wind back emergency Covid pandemic-funding but extended financial relief for small firms.

It joins other central banks in scaling back purchases of commercial paper and corporate bonds, but at a slower pace as the Omicron variant of the virus spreads rapidly and threatens economic recovery.

Loan assistance for struggling smaller businesses was extended by another six months, while support for larger firms would be pared back gradually from April.

The decisions highlighted the dilemma faced by the BOJ as it tries to stoke inflation, despite other major economies wrestling with cost increases as supply chain and labour shortages stifle productivity.

On Thursday the Bank of England became the first G7 central bank to raise interest rates since the pandemic started.

That followed a US Federal Reserve decision to end its bond-buying program earlier and signal three interest rate rises next year, while the European Central Bank said it was also winding down emergency measures.

The BOJ said it would gradually lower its holdings of corporate bonds and commercial paper back to pre-pandemic levels of around 5 trillion yen ($44 billion), starting from April.

It also maintained its targets for short-term interest rates at minus 0.1% and the 10-year Japanese government bond yield at around zero.