Bank of Japan is opting for additional monetary stimulus measures next week as the coronavirus outbreak continues to wreak havoc on the economy, it was learned Thursday.
In a move to mitigate the impact of the pandemic, the central bank is likely to launch additional stimulus for the second month in a row when the BOJ Policy Board meets next week.
Measures to mitigate the impact of the pandemic on its economy will 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. This led to the government expanding 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 the Financial dirge is leading to a decline in consumer spending
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 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.
What are other measures the BOJ may implement on salvaging the economy?
A loan with Zero Interest
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.
Hiroaki Kuramochi, chief market analyst at Capital Partners Securities Co. is pessimistic about BOJ’s monetary policies
"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,
Monetary policy has inherent limitations and is unlikely to offer a fundamental solution to an epidemic.
The benchmark Nikkei ending down 2.5 percent at 17,002.04, its lowest close in more than three years and 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."