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The Bank of Japan’s (BOJ) creation of  a new “interest scheme to promote lending,” could become the central bank’s new weapon to counter the side-effects of its massive stimulus program, Reuters reports, citing  four sources familiar with its thinking.

Additional takeaways

“Offsetting the negative rate charge, the scheme will pay banks varying rates for taking up cash from the BOJ, depending on the purpose of the loans they make.”

“The scheme also gives the BOJ discretion over which sectors to divert money to, making it a potentially useful tool to assist initiatives such as green investment.”

“This scheme has the potential to become the BOJ’s new tool.”  

“The BOJ can choose timely themes like green, and pay higher interest to lenders.”

FX implications

The creation of this new scheme could be aimed at convincing markets that  the BOJ can take rates deeper into negative territory while minimizing the side effects of its ultra-lose monetary policy.

USD/JPY is off the 109.58, staging a quick comeback to near 109.80 levels amid a rebound in the US dollar across the board. The focus remains on the FOMC minutes.