Bank of Japan to consider climate change in monetary policy

May 31, 2021|Written by Jamie Woolley|Bank of Japan

The Bank of Japan (BOJ) will consider climate change in monetary policy discussions, BOJ Governor Haruhiko Kuroda said in a Bloomberg interview on Thursday. “We have a great interest [in climate change and its economic and financial impacts]. Naturally, how we respond to this at the level of monetary policy will become a topic of discussion.”

Kuroda’s statement is a further indication that the BOJ is considering moving beyond climate risk analysis to active participation in global efforts to reduce the emissions that cause climate change. Speaking to the Japanese Parliament, Kuroda has expressed a willingness to consider the possibility of introducing climate considerations into monetary policy criteria and has highlighted climate change as one of the key themes in guiding monetary policy. However, he has been slow to support the targeting of green bonds in the bank’s corporate bond-buying programme, citing many issues, including the principle of market neutrality.

Sweden’s Riksbank, the Banco Central do Brasil and the People’s Bank of China already use environmental criteria in monetary policy operations, and the Bank of England is preparing to green its corporate bond purchases following a recent update to its mandate. Green monetary policy is also a central part of the discussion surrounding the European Central Bank’s (ECB’s) ongoing review of its climate strategy.

The BOJ was the first central bank to introduce quantitative easing (QE) into its monetary policy (in 2001) and its QE portfolio currently stands at US$6.6 trillion, behind only the ECB and the US Federal Reserve. However, it has been slow to incorporate climate change into its activities, focusing largely on climate risk alone. Although Japan is highly vulnerable to the impacts of climate change, research has found that Japanese companies remain substantially out of alignment with the Paris Agreement goals and that current investor portfolios are significantly exposed to climate-related risk.

BOJ Governor Haruhiko Kuroda will be speaking at this week’s Green Swan conference.

This page was last updated May 31, 2021

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