The Bank of Japan has finally launched a plan which is aimed at increasing funding towards climate change, in a surprise move underscoring the importance of the issue for central banks.

The bank has further maintained its huge monetary stimulus to support the country’s economic recovery and extended a deadline for asset-buying and loan programs which were launched last year to channel funds to pandemic-hit firms.

Japan’s central bank plans to launch the climate change scheme by the end of this year and will come up with a preliminary outline of its plan at its next policy-setting meeting in July.

“Climate change issues could exert an extremely large impact on economic activity, prices and financial conditions from a medium- to long-term perspective,” the BOJ said in a statement.

“Supporting private sector efforts from a central bank`s standpoint will contribute to stabilizing the economy in the long run,” it said.

The nitty gritty of the scheme includes that the central bank will give funds to financial institutions that increase loans and investment for activities aimed at combating climate change.

The details of the new scheme are yet to be announced. The bank said it will be modelled after a similar program that offers cheap loans to financial institutions that boost lending in areas considered to be growth industries.

After the two-day meeting, the BOJ also kept its target for short-term interest rates at -0.1% and for long-term yields around 0%, as widely expected, and extended by six months the September deadline for its asset-buying and loan programs.

Japan’s economy came down at an annualized 3.9% in the first quarter and made a modest rebound, if any, in the current quarter as anti-virus measures weigh on consumption.

Core consumer prices in May surged 0.1% from a year earlier, marking the first year-on-year increase since March 2020 but remaining far distant from the BOJ`s 2% goal.

Recently, BOJ officials hinted towards the readiness to put more emphasis on addressing economic and financial challenges posed by climate change.