BOJ Paying Banks To Boost Pandemic Relief, Compensates For Negative Interest Rates

• As the Bank of Japan tries to pump more funds to companies hit by the coronavirus pandemic, it is offering banks hundreds of millions of dollars in bonuses, a move analysts say is aimed at easing the side-effects of its negative interest rate policy.
• In March, as COVID-19 clobbered the global economy, the BOJ cobbled together special “coronavirus relief” operations to help keep cash-strapped companies afloat. Under the scheme, the BOJ lends cash to banks against their lending to the private sector, such as loans and bonds, as collateral.
• Banks rushed to the plan, gobbling up 27 trillion yen ($250Bn) through the channel by July. That is roughly as much as the number of banks’ deposits on which the BOJ imposes negative interest rates.
• Record bank lending in recent months suggests the BOJ’s plan is working — a rare success of late in its battle to revive the economy — but it is also a sign that policymakers’ focus is now more on supporting banks, rather than keeping rates low.

(Source: Reuters)