• Bloomberg


The Bank of Japan is expected to leave its main policy levers untouched Tuesday as it assesses a raft of measures already taken to support the pandemic-hit economy.

The BOJ is likely to leave interest rates and asset purchases unchanged at the end of its two-day meeting, which began Monday. Officials will consider the impact of measures taken so far to soften the impact from the virus and don’t see a pressing need now for any further major moves, people familiar with the matter said.

Many economists surveyed by Bloomberg expect the estimated size of a BOJ loan program linked to government lending to rise after Prime Minister Shinzo Abe’s administration announced an expansion of the lending measures last month.

Market fluctuations last week are far from the volatility observed in March, and continued stability in the yen has given the BOJ breathing room to sit tight for the time being. The economy is also likely past its weakest point, following the lifting of the national state of emergency in late May and the gradual easing of lockdowns in key export markets.

“No big move doesn’t mean that the BOJ is free from any concerns,” said Tomo Kinoshita, global market strategist at Invesco Asset Management in Tokyo. “The BOJ will be checking what else needs to be done and communicating its willingness to do more.”

Since March, the bank has pledged unlimited purchases of government bonds, expanded its buying of exchange-traded funds and launched loan programs as part of measures estimated to be worth about $700 billion.

The Federal Reserve last week painted a gloomy picture of the outlook for the United States and hinted that interest rates may effectively stay at zero through 2022. Gov. Haruhiko Kuroda will probably sound a dovish tone at his post-decision news conference to avoid the possibility of the yen strengthening.

The BOJ policy statement is usually out in early afternoon, with Kuroda’s news conference following at 3:30 p.m. in Tokyo.

Economists will look to see if the BOJ changes the estimated size of its lending program and by how much. The BOJ initially estimated the program’s size at about ¥30 trillion ($280 billion) as part of a ¥75 trillion package of virus-response financing measures.

Officials at the central bank won’t characterize a higher figure for the lending program as an expansion of monetary easing as they never intended to put a cap on the size of the program, people familiar with the matter said.

After the Fed surprised investors last week by hinting it might keep rates near zero for years, Kuroda could make similar comments at the news briefing or in the BOJ’s forward guidance.

The BOJ will start to focus on whether companies are able to pay back loans and the effects on employment and lenders, with joint measures from the BOJ and the government to smooth business funding appearing to be effective. Investors will be looking for any hints of the bank’s plans for addressing solvency issues.

Some traders want more clarity on the BOJ’s view on super-long bond yields, which touched the highest level in more than a year this month. BOJ watchers want to know if the board has shifted its focus to keeping yields low, from steepening the curve, before an increase in government bond issuances next month.

The BOJ expects interest rates to remain at the current low level or even lower.

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