Japan's central bank on Friday announced its first investment fund for efforts to address climate change, as the government works towards its new target of reaching carbon neutrality by 2050.

The scheme, likely to start this year, will be a successor to an existing programme aimed at promoting economic growth more generally, the Bank of Japan said after a two-day policy meeting.

"Climate change issues could exert an extremely large impact on developments in economic activity and prices as well as financial conditions from a medium- to long-term perspective," its policy statement said.

"The bank considers that supporting the private sector's efforts on the issues from a central bank's standpoint will contribute to stabilising the macroeconomy in the long run."

Financial support measures for pandemic-hit businesses were also extended by six months to the end of March 2022, a day after the government approved lifting a virus state of emergency in nine prefectures including Tokyo.

Slightly looser "quasi-emergency" restrictions will be set in the capital and six other areas until July 11, less than two weeks before the postponed Tokyo Olympics begin.

The extension of business support had been widely expected, said Naoya Oshikubo, senior economist at SuMi TRUST.

"Many companies are continuing to suffer financially from the Covid-19 state of emergency in a number of Japanese prefectures, as well as from the country's low vaccination rates," said Oshikubo ahead of the policy decision.

"The extended financial support package will be very effective in helping hard-pressed small and medium-sized businesses in Japan as demand for business support loans is high," he added.

Financial support measures for Japanese businesses affected by the coronavirus pandemic have been extended
Financial support measures for Japanese businesses affected by the coronavirus pandemic have been extended AFP / Charly TRIBALLEAU

Japan's vaccine rollout started comparatively slowly, but has picked up pace in recent weeks. Just over six percent of the population is currently fully vaccinated.

The Bank of Japan left its monetary easing policy unchanged, reiterating that it "will closely monitor the impact of Covid-19 and will not hesitate to take additional easing measures if necessary".

But Haruhiko Kuroda, the central bank's governor, sounded a note of optimism as vaccinations speed up.

"Vaccinations are rapidly advancing," he told reporters on Friday afternoon.

"With vaccinations advancing at this rate, I think there is a possibility that face-to-face service consumption will recover faster than we previously expected. As a whole, I think we are heading to a brighter outlook than before."

Earlier Friday, official data showed Japan's consumer prices rose slightly in May for the first time in 14 months, largely because of a rebound in energy prices.

Japan has long struggled to hit a two percent inflation target seen as key to kickstarting the world's third-largest economy, despite a barrage of stimulus and monetary easing packages.

Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute, said "the BoJ is not in a position to taper its easing policy" as demand in the service sector is still weak owing to the pandemic.

Prime Minister Yoshihide Suga in October set a 2050 deadline for Japan to become carbon neutral, significantly firming up the country's climate-change commitments.

The nation has struggled to cut carbon emissions after shutting down reactors in response to the 2011 meltdown at the Fukushima nuclear power plant.

Coronavirus