According to the Jiji News Agency, the Bank of Japan is set to purchase ‘green bonds’ to control the movement of foreign currencies. However, the news agency did not cite sources. It is believed that this decision will be part of the BOJ’s July 15-16 policy-setting meeting.
With this new initiative, the Bank of Japan will be able to make its macroeconomic policy more consistent and reduce risks in investing. This strategy will also help the Bank of Japan purchase securitized bonds with longer maturities than those available in its current market. These strategies are reportedly related to various global financial crises that have occurred since the COVID-19 pandemic.
Due to the recent financial crisis, most banks cannot lend and invest big money anymore. This is why the need for long-maturity investments is very high at present. Also, the interest in the purchase of green bonds has been extreme due to the global trend of critical urgency in reducing greenhouse gas emissions.
What are Green Bonds?
Green bonds are debt securities issued by governments, companies, or other entities to raise environmental funding. In the past, if a country or company wanted to build ecological facilities such as renewable energy plants, they would have to issue bonds and loans. However, with this new investment instrument, the government can quickly fill the gap in financing environment-friendly projects.
For example, if a company issued a green bond and sold it to investors at a 10% interest rate, the company would have to use the money raised from the bond sale to build environmental infrastructure projects such as renewable energy facilities. The income generated by these projects would then be used to pay back the interest promised on the original bond.
The World Bank first issued green bonds in July 2007. Since then, this type has grown exponentially to become one of the most popular types of bonds today.
One of the main differences between green and common bonds is that they are not subject to the risk of bankruptcy if the environment-friendly projects for which they were issued fail. That means that investors have no worries about a company or government going bankrupt or defaulting on their bond payments because this would drastically reduce their returns.
Another difference is that when an investor acquires a green bond, he has voting rights at the annual general meeting of shareholders or other arrangements, depending on the type of company it’s invested in. This allows for more transparency in how these companies use their investments and helps investors decide whether they want to make more investments in such companies in the future.
History of Green Bonds in Japan
In 2014, the Development Bank of Japan issued its first Green Bond. Since then, the number of green bonds published has increased. This bond is Japanese Yen denominated and can be an investment tool for Japanese investors who wish to support environmentally friendly infrastructure projects worldwide.
The Tokyo Metropolitan Government issued a Green Bond in 2017, which then led to its total issuance increasing by seven times over five years. Japan has issued 215.6 billion yen worth of green bonds since January 2021. This is a lot of growth from the previous year, which only saw an increase in bonds by 2% and a total value of all bonds issued.