BOJ seen holding policy steady, staying ready to ease if second wave of infections

BOJ seen holding policy steady, staying ready to ease if second wave of infections
© Reuters. FILE PHOTO: Traffic signs are seen in front of the headquarters of the Bank of Japan© Reuters. FILE PHOTO: Traffic signs are seen in front of the headquarters of the Bank of Japan

By Leika Kihara

TOKYO (Reuters) – The Bank of Japan is likely to pause in its crisis-response moves on Wednesday as the economy emerges from the damage caused by COVID-19, but it is also expected to reassure markets it will boost stimulus again if a second wave of infections hits growth.

With markets calm and capital expenditure holding up, the central bank is seen sticking to its view Japan is headed for a moderate recovery later this year. But the outlook is clouded by a renewed rise in infections and soft exports.

“The next test for policymakers will come around autumn,” said a source familiar with the BOJ’s thinking, with the next central bank policy review due in September.

“Banks are lending aggressively now. But that may change if the pandemic persists and deepens the economy’s stagnation,” the source said, a view echoed by another source.

At its two-day rate review ending on Wednesday, the BOJ is expected to maintain its -0.1% short-term interest rate target and a pledge to cap 10-year government bond yields around zero.

It is also seen making no major tweaks to its asset-buying and lending programmes for easing corporate funding strains.

While the board may cut its growth forecasts, the BOJ is seen maintaining its cautiously optimistic view on the economy in a sign policy will be in a holding pattern.

Under yield curve control, the BOJ sets interest rates as its main policy target. But the pandemic has forced it to build crisis-fighting tools focusing on credit easing, casting doubt on how much emphasis it will keep placing on its rate targets.

While the BOJ has said rate cuts would be among options if it needed to stimulate the economy, analysts warn that doing so could hurt commercial banks’ profit and their ability to lend.

Some in the board have called for a reassessment of the BOJ’s policy framework as inflation drifts further below its 2% target, minutes of past meetings showed.

BOJ Governor Haruhiko Kuroda may offer some clues at his post-meeting briefing on the bank’s thinking on how to respond to the risk of a second wave of infection, analysts say.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

XL subscribe to our newsletter banner

Get the latest news and advice on COVID-19, direct from the experts in your inbox. Join hundreds of thousands who trust experts by subscribing to our newsletter.

Send your news and stories to us news@climaxradio.co.uk or newstories@climaxnewsroom.com and WhatsApp: +447747873668.

Before you go...

Democratic norms are being stress-tested all over the world, and the past few years have thrown up all kinds of questions we didn't know needed clarifying – how long is too long for a parliamentary prorogation? How far should politicians be allowed to intervene in court cases? To monitor these issues as closely as we have in the past we need your support, so please consider donating to The Climax News Room.