Bank of Japan to Weigh Covid Aid as Main Stimulus Chugs On: Decision Guide
(Bloomberg) -- The Bank of Japan is seen standing pat on its main stimulus Friday while weighing an extension to its Covid aid program at the end of a big week of central bank decisions.
With the vast majority of economists expecting no change in the BOJ’s negative interest rate or its main asset purchases, the focus shifts to whether the bank might extend or tweak a funding program for Covid-hit businesses that’s set to expire in March, or hold off on deciding until later.
A move could come this week or in January, according to people familiar with the matter. Most economists don’t see a decision until next month’s policy meeting, given uncertainties over the omicron variant. Some 20% see the BOJ waiting until March.
The BOJ starts its two-day meeting just hours after the Federal Reserve opted to accelerate the tapering of its bond purchases.
The fact that most analysts see the BOJ waiting until early next year to decide the fate of an aid program set to expire in little more than three months is evidence of how quickly omicron has clouded the recovery picture.
In the U.K., where Prime Minister Boris Johnson announced new restrictions to contain the spread of the new strain, the Bank of England is seen later Thursday pushing back its first rate increase since the pandemic into 2022, according to economists.
When the BOJ does end up making its decision on the aid program, about two-thirds of analysts expect a partial extension.
That could involve keeping incentives for private-sector lending to help smaller firms, while scaling back the BOJ’s direct buying of corporate bonds and commercial paper, a measure that helps larger firms. Credit markets appear to have healed enough that corporations aren’t having trouble selling debt.
The BOJ typically releases its policy statement around noon. Governor Haruhiko Kuroda usually briefs the media at 3:30 p.m. in Tokyo.
What Bloomberg Economics Says...
“We think the BOJ could extend the support program past its March 2022 expiry. This would be prudent, in our view, given the increased uncertainty that the omicron variant has cast on the economic outlook.”
-- Yuki Masujima, economist
To read the report, click here.
What to look for
- Regardless of timing, the BOJ could also scale down the part of its Covid funding program that helps small businesses, its support to banks making pandemic-related loans. Deputy Governor Masayoshi Amamiya last week said overall funding conditions have improved.
- If the BOJ chooses to trim its purchases of corporate debt, investors will want to know how they do it. They could lower the ceiling in steps, given that the BOJ now owns 11 trillion yen ($97 billion) of the debt, about double the pre-pandemic maximum.
- Any shrinking of the Covid program will probably come with strong assurances from the BOJ that the moves aren’t steps toward normalization. That will keep downward pressure on the yen as other central banks head toward tightening.
- Look for Kuroda to share his thoughts on inflation and the impact of rising cost pressures on Japanese businesses. Firms are facing the biggest cost pressures in years, but are rarely passing them on to consumers.
- The BOJ this week made a series of rare market interventions to keep repo rates low. Market participants are watching how the governor explains the move and whether he’ll reiterate his determination to keep short-term interest rates at -0.1%.
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