The Bank of Japan will change the lending rate for its operation supporting responses to climate change from fixed to variable. The new method uses the average rate over the lending period, providing greater flexibility if rates rise during the period and aiming to better calibrate incentives for financial institutions.
The Bank of Japan has decided to switch the lending rate for its operation supporting responses to climate change, one of its funds-supplying operations, from the previous fixed-rate method to a variable-rate method. This will make the operation’s terms move in line with interest-rate levels over the entire period, rather than only at the current point in time.
Under the new system, the average interest rate during the lending period will apply. Even if rates are raised during the lending period, allowing the rate to move flexibly is intended to keep incentives for financial institutions at a more appropriate level.
The change is positioned as part of the BOJ’s efforts to normalize monetary policy. Specifically, it is intended to make realistic adjustments to the rate-related terms of funding provided through the operation and to guide the behavior of private financial institutions to an appropriate degree.