Kuroda says BOJ's bank aid scheme won't affect yield curve control

Bank of Japan Governor Haruhiko Kuroda wearing a protective face mask attends a news conference as the spread of the coronavirus disease (COVID-19) continues in Tokyo, Japan, April 27, 2020, in this photo released by Kyodo. Mandatory credit Kyodo/via REUTERS ATTENTION EDITORS - THIS IMAGE WAS PROVIDED BY A THIRD PARTY. MANDATORY CREDIT. JAPAN OUT. NO COMMERCIAL OR EDITORIAL SALES IN JAPAN.

TOKYO (Reuters) - The Bank of Japan’s new relief scheme for regional lenders will not affect monetary policy, its governor Haruhiko Kuroda said on Wednesday, rebuffing the view the scheme could make it tougher for the central bank to achieve its interest rate targets.

In a bid to bolster the health of Japan’s ailing regional banks, the BOJ last week unveiled a scheme under which it will pay 0.1% interest on deposits held by lenders that cut costs, boost profits or consolidate.

Some analysts have said the 0.1% interest paid to applicable lenders could push up money market rates and erode the BOJ’s control over short-term interest rates.

Under a policy dubbed yield curve control, the BOJ sets its short-term rate target at -0.1% and that for 10-year government bond yields at around 0%.

“The scheme won’t have an impact on our yield curve control policy,” Kuroda told parliament, when asked about the relief programme’s impact on monetary policy.

“We adopted this scheme as prudence policy,” which aims to ensure financial institutions stay healthy enough to channel sufficient funds to borrowers, he said. “This is not something that is carried out as monetary policy.”

Kuroda repeated the BOJ will maintain its massive stimulus programme for the time being, as the economy continues to suffer the hit from the coronavirus pandemic.

“The economy likely hit bottom around April-June and is expected to continue improving as a trend. That will help price growth turn positive and gradually accelerate toward our 2% inflation target,” he said.

Reporting by Tetsushi Kajimoto and Leika Kihara; Editing by Chang-Ran Kim and Ana Nicolaci da Costa