BOJ cuts growth forecast, unveils outline of climate scheme

TOKYO (Reuters) - The Bank of Japan cut this fiscal year's growth forecast on Friday but maintained its view the economy was headed for a moderate recovery, a sign monetary policy will be in a holding pattern for some time.

At its two-day rate review that ended on Friday, the BOJ also released an outline of its new scheme aimed at boosting funding for activities combating climate change.

It will offer zero-interest funds for a period of a year that can be rolled over any number of times to financial institutions, the outline showed.

The climate scheme will be launched this year and last until fiscal 2030. The BOJ will offer funds to banks that extend green and sustainability-linked loans, as well as invest in green bonds and sustainability-linked bonds. Transition finance loans will also be applicable for the scheme.

As widely expected, the central bank left its yield curve control (YCC) target unchanged at -0.1% for short-term interest rates and 0% for 10-year bond yields.

In fresh quarterly projections released on Friday, the BOJ said it expects the economy to expand 3.8% in the current fiscal year ending in March 2022 and increase 2.7% the following year.

In prior forecasts made in April, the BOJ had expected the economy to grow 4.0% this fiscal year and 2.4% the following year.

Japan's economy shrank an annualised 3.9% in January-March and likely barely grew in the second quarter, as the pandemic took a toll on service spending.

Analysts polled by Reuters now expect the economy to grow 4.2% in the current quarter, lower than an estimate they made last month, due the hit from new pandemic curbs.