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Bank of Japan Likely to Strengthen Stimulus Next Week

Bank of Japan Likely to Strengthen Stimulus Next Week

(Bloomberg) -- The Bank of Japan will likely expand its stimulus measures at its meeting next week as it seeks to limit the blow from the coronavirus outbreak and reassure volatile markets, according to people familiar with the matter.

The central bank is likely to show a more aggressive stance on buying assets such as exchange-traded funds, the people said. Whether the BOJ will raise its 6 trillion yen ($58 billion) ETF-purchasing target remains unclear and could depend on the severity of market conditions at the time of the meeting, they added.

Bank of Japan Likely to Strengthen Stimulus Next Week

To support companies struggling from the impact of the virus, the BOJ will likely offer a set of measures including a loan program, the people said. The bank may also adjust its purchasing of commercial paper and corporate bonds to help firms, some of the people said.

The BOJ meeting next week comes amid a wave of easing measures by global central banks in response to the spread of the virus as it hits spending, production and travel around the world. Most analysts see the virus tipping Japan’s economy into recession.

The Federal Reserve, the Bank of England and the Bank of Canada have all cut rates by half a percentage point this month. But lowering the BOJ’s negative interest rate still remains unlikely without a sharper deterioration in markets, given the additional pressure it would put on the banking sector, the people said.

Officials were watching to see what action the European Central Bank took on Thursday and whether it lowered its interest rate and how markets responded, some of them said. At the Thursday meeting, the ECB promised to buy more bonds and enhanced a loan program, while keeping its negative interest rate unchanged. Markets continued to fall.

ECB chief Christine Lagarde also said governments needed to make an ambitious fiscal response.

BOJ’s Kuroda Meets Abe After Latest Stock Plunge on Virus Fears

In response to the virus outbreak, Prime Minister Shinzo Abe has released two sets of emergency measures to help companies and people affected by the outbreak. Members of his own ruling party are already calling for a much more substantial package once there is a clearer picture of the damage to the economy.

Abe met with Kuroda for their first face-to-face discussion since September on Thursday, an encounter that is likely to fuel expectations that the central bank will act next week. The BOJ won’t hesitate to take appropriate action in a timely manner, Kuroda told reporters after the meeting.

BOJ officials are well aware of the larger-than-expected moves of some of its global central banking peers and the possible disappointment the BOJ risks if its measures are seen as limited, the people said.

Some 90% of 41 economists expect additional stimulus at this meeting with a majority of them predicting an increase in ETF purchases, according to a Bloomberg survey this week. All of them say a new lending program to support companies hurt by virus will be unveiled.

Memories remain fresh for the BOJ in its crisis response. In comparison with other major central banks in the wake of the global financial crisis, the bank was seen doing too little, too late, triggering a jump in the yen and a further deterioration of the economy. The bank is likely determined not to repeat history.

BOJ Buys ETFs at Four Times Target Pace to Back Kuroda’s Vow

Still, there is cautiousness within the bank to commit to a higher ETF-buying target that will be difficult to lower in the future, especially given existing flexibility in how much the BOJ can increase its ETF purchases in the short term, the people said.

Following an emergency statement by the governor last week, the BOJ has already stepped up its daily ETF purchases. It bought 101.4 billion yen of the stock funds on Thursday--a daily record--for the fifth time this month.

What Bloomberg’s Economist Says

“The strong yen adds downside risks to Japan’s growth and inflation, and could potentially prompt the Bank of Japan to consider countermeasures. We expect an expansion of the ETF purchases by the BOJ if the yen hits below 100.”

Yuki Masujima, economist

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To contact the reporters on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net;Sumio Ito in Tokyo at sito58@bloomberg.net

To contact the editors responsible for this story: Malcolm Scott at mscott23@bloomberg.net, Paul Jackson, Jason Clenfield

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