The new decisions to be made under the newly elected Prime Minister Shinzo Abe. The anticipation for this event has caught the attention of markets worldwide, as Japan’s central bank is expected to reveal some significant policy changes, aimed at combating deflation and fostering economic growth. Experts at TD Securities have weighed in on what they believe will be announced on Friday.
Foremost in their anticipations is the expectation that the BoJ will maintain its negative interest rate policy, a controversial yet necessary move in their view. Through this policy, the BoJ has cut interest rates below zero, effectively charging banks for holding reserves. In theory, this discourages banks from hoarding cash and promotes spending and lending. Though there has been criticism regarding the effectiveness of this policy, it seems the BoJ is less concerned about potential repercussions on the banking system
Additionally, it is projected that the central bank will maintain its asset purchase program, which entails the purchase of government bonds and other financial assets at a rate of 80 trillion yen per year. This program, dubbed “quantitative and qualitative monetary easing” (QQE), is aimed at boosting Japan’s inflation rate to the desired 2% target. The program has been relatively successful in raising inflation, albeit gradually, and it seems the BoJ is committed to continuing this strategy. However, some market participants speculate that the bank might consider dialing back its aggressive bond buying in the future if it sees that inflation is consistently moving towards its target while economic growth picks up.
TD Securities also predicts that the BoJ will maintain its commitment to achieving a 2% inflation target. Since 2013, when the goal was first set, the central bank has consistently implemented expansionary monetary policies to try and reach this elusive target. While there have been some setbacks, including an increase in the consumption tax, the analyst group believes that the bank will stick by this goal, even if it means continuing to implement accommodative monetary policies in the medium term.
Experts at TD Securities also expect the central bank to continue its focus on yield curve control (YCC), a policy that allows the BoJ to manipulate the yield curve by adjusting their bond holdings, with the aim of lowering borrowing costs and stimulating economic growth. The BoJ is likely to adjust the target rate for 10-year Japanese government bonds around 0%, as the central bank will want to maintain low long-term interest rates to prevent a spike in the cost of borrowing for corporations and households.
Another development that TD Securities is anticipating is the release of the central bank’s quarterly outlook report. This report contains valuable information on the BoJ’s views about the economy, inflation, and monetary policy, which will provide some insight into future policy decisions.
As for the impact of Prime Minister Shinzo Abe’s departure on the BoJ’s policies, TD Securities notes that his successor, Yoshihide Suga, is expected to maintain similar policies. Abe’s economic program, known as “Abenomics,” has been characterized by loose monetary policies, fiscal stimulus measures, and economic reforms to pull Japan out of its deflationary spiral. Under this regime, the BoJ has played a crucial role, implementing policies such as QQE and YCC, amongst others. Suga, who has been part of Abe’s government since 2012, is likely to continue this economic trajectory, albeit with some changes and improvements.
In conclusion, TD Securities anticipates that the Bank of Japan will unveil a monetary policy announcement that continues to support current policies, such as maintaining a negative interest rate, an asset purchase program, and a 2% inflation target. Furthermore, they expect the central bank to stand by its commitment to yield curve control and foresee the release of the quarterly outlook report. While there may be some changes in policy direction due to the recent change in government, analysts at TD Securities believe that the overall economic approach will remain consistent with previous years.
Investors and market participants alike will be keeping a close watch on the BoJ’s upcoming announcement, as the decision is likely to have a significant impact on global markets. As the world continues to grapple with the COVID-19 pandemic and its subsequent economic fallout, the actions of central banks such as Japan’s will play a critical role in determining the trajectory of economic recovery.
