Japan's central bank will likely offer zero interest, long-term funds to commercial lenders that provide loans or investment for activities aimed at combating climate change, said sources familiar with its thinking.

Share Market Live

NSE

The plan will be part of an outline due out next week that lays out details of the Bank of Japan's new loan scheme, which is designed to encourage green finance. The move would put the BOJ in line with a growing number of central banks stepping up efforts to address the economic fallout of climate change.

Under the proposal, the BOJ would offer longer-than-usual loans that extend for several years at zero interest, five sources said on condition of anonymity due to the sensitivity of the matter.

Discussions are still preliminary and subject to change as there is no consensus yet within the BOJ on the terms of the funding, the sources said.

However, the sources said many policymakers are wary of adding more incentives, such as paying interest to banks that tap the scheme, due to a lack of clarity over which loans are considered "green".

As such, the BOJ may opt to provide longer-dated loans rather than pay the 0.1 percent or 0.2 percent interest it offers to banks under existing loan schemes, such as the one for firms hit by the pandemic.

The BOJ will decide an outline of its scheme at its next policy meeting on July 15-16, and aims to roll out the first batch of loans by the end of this year.