Bank of Japan Expected to Extend Covid Programs Amid Virus Surge

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The Bank of Japan is widely expected Friday to extend its special funding measures for pandemic-hit businesses amid a resurgence of the virus that earlier this week forced the government to suspend domestic travel incentives.

Some 66% of 38 economists surveyed said the bank will lengthen the duration of crisis programs that include increased purchases of corporate bonds and commercial paper and 120 trillion yen ($1.1 trillion) in funding tools to support bank lending to struggling firms. The programs are currently set to expire in March.

All the analysts said the BOJ will likely keep its key interest rate and main asset purchases unchanged at the meeting.

Bank of Japan Expected to Extend Covid Programs Amid Virus Surge

Governor Haruhiko Kuroda and his colleagues are likely to focus on how the recent jump in Covid cases is affecting corporate funding and financial market stability, two key priorities for the BOJ amid the crisis. Relative calm on those fronts are the reason most analysts see the bank taking the measured step of extending existing programs, without broadening them.

Read More: BOJ Is Said Likely to Mull Extending Virus Steps This Month

The BOJ typically releases its policy statement around noon, with Kuroda briefing the media at 3:30 p.m.

Infection cases have surged since the bank last met in late October, so investors will be listening carefully for any signs that Kuroda is now more cautious about the outlook.

Prime Minister Yoshihide Suga on Monday suspended his signature domestic travel program for two weeks over the New Year holidays nationwide after newly confirmed daily infections topped 3,000 for the first time over the weekend.

The BOJ’s policy decision will be the last one scheduled from a major central bank in 2020, one of the most fraught years in memory. The European Central Bank last week expanded its stimulus while the Federal Reserve said Wednesday it would maintain its bond-buying until substantial further progress is seen in cutting unemployment and boosting inflation.

What Bloomberg Economics Says...

“The Bank of Japan is likely to extend its Covid-related lending programs that are due to end in March, throwing its weight behind the latest fiscal effort to buttress the recovery. We expect it to leave its main policy levels unchanged.”

-- Yuki Masujima, economist

To read full report, click here.

What to look for

  • Most analysts see the BOJ deciding to hold its special funding programs in place through September, a six month extension. Anything longer than that, or any increase in the size of the measures, would surprise the market.
  • With the Nikkei at a 29-year high, criticism is mounting over the BOJ’s purchases of exchange-traded funds, a policy introduced 10 years ago this week. How the bank will eventually dispose of the assets is a big question for market participants. They will closely scrutinize any comments from Kuroda on the topic.
  • Investors will also be looking for any signs the BOJ has become more concerned about the economic outlook. The bank cut its growth forecast at its last meeting. Since then, some analysts have forecast the pandemic could drive the economy back into contraction.
  • What the governor says about inflation will offer an indication of how close the BOJ has come to boosting stimulus. Japan’s core consumer prices fell at the fastest pace in nine years in October and declines are expected to deepen.
  • Kuroda is also likely to be asked about a reported asset swap between the BOJ, the finance ministry and Japan’s mint that is said to have been designed to help the government reduce the debt needed to fund its latest extra budget.

©2020 Bloomberg L.P.

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