By Megumi Fujikawa

TOKYO--The Bank of Japan said Friday that it will provide zero-rate loans to commercial banks to help companies finance projects to mitigate climate change.

The BOJ's move adds to the global debate over whether central banks should broaden their mandate beyond their traditional goal of price stability. Japan's central bank said climate change needs to be addressed because of its significant economic and financial impact.

The European Central Bank has said it will support efforts to combat climate change, including via its bond-purchase programs. Meanwhile, Federal Reserve Chairman Jerome Powell has said that climate change isn't something that the central bank directly considers in setting monetary policy, although he said it could be a risk that falls under the Fed's existing mandates of bank supervision and financial stability.

The Japanese central bank said it will offer loans at no interest to lenders in the private sector so those banks can use the money to support companies that make investments related to climate-change issues.

The BOJ said eligible investments or loans include green loans, green bonds, sustainability-linked loans and bonds with performance targets related to efforts on climate change.

Banks that make loans using the new facility will be awarded larger exemptions from the negative interest rate currently charged on some of their deposits at the central bank.

Also on Friday, the BOJ lowered its growth forecast for the year ending in March 2022.

In its quarterly outlook report, the bank's policy board projected the Japanese economy to expand 3.8% in the current fiscal year, compared with its previous projection of 4.0% released in April. It said it expects 2.7% growth in the year ending March 2023, up from a previous projection of 2.4% expansion.

The bank's policy board also said it expects core consumer prices, a figure that excludes fresh food, to rise 0.6% in the year ending March 2022. That is below the bank's longstanding 2% inflation target but higher than its previous projection of a 0.1% rise.

The central bank maintained its target for short-term interest rates at minus 0.1% and its target for the 10-year Japanese government bond yield at around zero.

Write to Megumi Fujikawa at megumi.fujikawa@wsj.com

(END) Dow Jones Newswires

07-15-21 2343ET