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The Bank of Japan (BOJ) announced on July 16 that it will start using its USD70bn foreign reserves to buy green bonds as part of efforts to promote global investment in activities aimed at combating climate change, as reported by Reuters on July 16. BOJ will implement purchases through the Asian Bond Fund, which the Executives’ Meeting of East Asia-Pacific Central Banks (EMEAP) created in early this century. BOJ also encourages large financial institutions to conduct environmental analysis under the global trend of green finance to build up a better green financial system for achieving the country’s emission reduction goals.
BOJ only holds 5% of the foreign assets of Japan, amounting to USD1.4tr in foreign reserves in total, while the Ministry of Finance holds 95%. Despite its small section of foreign assets, BOJ has noticed the rapidly increasing amount outstanding of green bonds in the global market and believed the trend would continue. Thus, it still decided to purchase more green bonds with its minority foreign asset holdings. To cater to the promise Japan made in 2019 that the country will achieve carbon neutrality before 2050, BOJ also announced other policies, such as the release of the first zero-interest green fund with maturity to the end of March 2031. In addition, Japan has noticed the relationship between the target of carbon neutrality and the social economy and made policies before regarding sustainable finance. Previously, BOJ announced new climate change operations last month, including allowing companies that disclose ESG information to get extra funds from banks.
Sources:
https://www.ibtimes.com/bank-japan-revises-down-gdp-forecast-details-green-fund-3253044
https://www.boj.or.jp/en/announcements/release_2021/rel210716b.pdf
