Bank of Japan keeps policy steady, eyes recovery from pandemicBank of Japan keeps policy steady, eyes recovery from pandemic
A man wearing a protective mask walks past the headquarters of Bank of Japan amid the coronavirus disease (COVID-19) outbreak in Tokyo

By Leika Kihara and Tetsushi Kajimoto

TOKYO (Reuters) – The Bank of Japan kept monetary settings steady on Tuesday and stuck to its view that the economy will gradually recover from the coronavirus pandemic, signalling that it has taken enough steps to support growth for now.

To clarify the scale of its money printing, the central bank said it plans to pump $1 trillion to cash-strapped firms through a range of crisis-response tools announced so far.

While the BOJ remains focused on steps to ease corporate funding strains, Governor Haruhiko Kuroda may offer hints on how it will deal with longer-term issues such as how to fire up growth and inflation when the pandemic begins to subside.

“Although economic activity will gradually resume, Japan’s economy will remain in a severe state for the time being,” the BOJ said in a statement.

“Once the impact of the pandemic subsides, the economy is likely to improve,” thanks to an expected rebound in consumption and output, as well as the boost from government stimulus, it said.

In a widely expected move, the BOJ maintained its yield curve control targets at -0.1% for short-term interest rates and 0% for long-term rates.

The central bank also made no major changes to its programmes to ease corporate funding strains, including a lending facility aimed at channeling funds to firms.

Due to the way it is designed, the size of money to be pumped out via the programmes will reach 110 trillion yen ($1 trillion) if more loans are taken out via government schemes, the central bank said.

Prime Minister Shinzo Abe declared a state of emergency in April, requesting businesses to close and citizens to stay home, a move that dealt a severe blow to consumption.

The emergency was lifted in late May, but analysts expect GDP contracted more than an annualised 20% in the current quarter, after having slipped into recession in January-March.

($1 = 107.4000 yen)

(Editing by Jacqueline Wong and Sam Holmes)