BoJ takes a breather but is poised to ease further
After it expanded its asset purchase programme in both September and October, we do not expect Bank of Japan (BoJ) to announce new substantial easing measures in connection with this week’s monetary meeting closing tomorrow. This is also the consensus view and we do not expect a major market reaction.
However, with Japan in recession, political pressure for more easing is intensifying and the BoJ board is poised to be more dovish next year. BoJ remains on an aggressive easing path and we expect the target for its asset purchase programme to be raised by JPY10-15trn as soon as its next meeting in December.
Besides BoJ expanding its asset purchase programme next year we also expect the maturity of BoJ’s bond purchases to be increased and the inflation target to be raised from 1% to 2% at some stage next year. Negative interest rates in Japan do not appear to be imminent.
No major easing measures expected tomorrow
After expanding the target for its asset purchases in both September and October we do not expect BoJ to announce additional major easing measures at its monetary meeting tomorrow. Particularly, we expect the target for the O/N money market rate to be left unchanged at 0%-0.1% and the target for its asset purchases to be left unchanged at JPY65trn. This is also the consensus view in the market, so the announcement of any substantial easing measures would be a big surprise.
At its previous meeting in late October BoJ in addition to raising its target for asset purchases by JPY11trn also announced a new loan facility to stimulate bank lending. This new facility will allow commercial banks to fund any net increase in their net lending to households and corporations at 0.1% interest rate at BoJ for up to four years. This lending facility can be compared to Bank of England’s ‘funding for lending facility’. BoJ is expected to announce more operational details about this lending facility in connection with the close of this week’s meeting tomorrow.