The Bank of Japan is considering taking additional monetary stimulus measures next week as the coronavirus outbreak continues to erode the economy, it was learned Thursday.
In an unusual move, the central bank is likely to launch additional stimulus for the second month in a row when the BOJ Policy Board meets on Monday, informed sources said.
The measures it could take include expanding outright purchases of corporate bonds and commercial paper to help improve business financing.
Corporate revenue is sinking with the plunge in economic activity. The hit was especially noticeable after the government expanded the state of emergency for the COVID-19 crisis to the entire country on April 16.
The BOJ thinks it needs to do more to support companies because many are facing the need to procure cash as their situations turn dire, the sources said.
It may also consider expanding a program for extending low-interest loans to financial institutions that support corporate financing, the sources said.
The two-day Policy Board meeting was scheduled to start on Monday, but the bank decided to shorten it to one day instead as a preventive measure against the coronavirus. The change was announced Thursday.
At the previous meeting on March 16, which was held ahead of schedule, the BOJ decided to increase purchases of exchange-traded funds, corporate bonds and commercial paper by ¥2 trillion ($19 billion) until the end of September. The BOJ also created a program to assist financing at small and midsize businesses.
The U.S. Federal Reserve and other central banks are also moving to hike corporate financing assistance.
The BOJ is hoping to help companies secure funds more easily as concerns deepen over the economic fallout from the deadly virus.
It is expected to also discuss measures to increase lending to financial institutions and help them lend to businesses by accepting a wider range of collateral, the sources said.
In March, the central bank decided to provide one-year loans with no interest to financial institutions against corporate debt worth about ¥8 trillion held as collateral.
The BOJ is expected to keep its short-term interest rate unchanged at minus 0.1 percent, the sources said.
As the spread of the virus and subsequent disruption have cast a shadow over the global economic outlook, some analysts are sympathetic to the BOJ’s woes, saying monetary policy has inherent limitations and is unlikely to offer a fundamental solution to an epidemic.
“I don’t think there are policy tools the BOJ can use in such a case, as the root cause is the virus itself,” said Hiroaki Kuramochi, chief market analyst at Capital Partners Securities Co.
Tokyo stocks gained ground immediately after the BOJ’s announcement of additional easing in March. But the rally soon lost steam, with the benchmark Nikkei ending down 2.5 percent at 17,002.04, its lowest close in more than three years.
The massive purchases of bonds and other assets could expose the BOJ to the risk of latent losses.
“The BOJ should leave market matters to the market,” said Shingo Ide, chief equity strategist at the NLI Research Institute.
“The impact of additional monetary policy is limited in the current situation,” Ido added. “It should be coordinated with fiscal policy and medical efforts to contain the disease.”
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