The Bank of Japan is expected to announce its monetary policy and economic outlook report on Thursday in an effort to ease economic gridlock going forward.
While the current negative rate on reserves has cut deep into profits of financial institutions with idle money, the apex bank may consider helping these intuitions lend by offering a negative rate on loans, according to a Bloomberg report.
The officials familiar with the talks said this could have a positive impact on the economy, since commercial lenders are complaining of poor borrower’s interest, but also could raise questions about the apex bank giving subsidies to commercial lenders.
Another possible surprise from Governor Haruhiko Kuroda is additional stimulus, after Japan’s Prime Minister Shinzo Abe said on Sunday he will create an extra-budget to address the economic damage caused by Kumamoto earthquakes that killed 48 people and destroyed 1527 houses, there is a possibility of additional stimulus from the BOJ, especially knowing consumer spending will drop due to self-restrain mood of the Japanese people following the disaster.
Again, BOJ has been looking to weaken the yen to boost exports and stimulate manufacturing sector. Even Taro Aso, Japan’s Finance Minister said “that rapid fluctuations, whether strengthening or weakening, are undesirable. Recent movements have been one-sided and action will be taken as needed.” With a possible drop in consumer spending following the disaster, this may be the right time for BOJ to add stimulus and end the yen current strength.
“The BOJ will aim to shock and awe the markets in order to push the yen weaker again,” said Mansoor Mohi-uddin, a Singapore based strategist at Royal Bank of Scotland Group Plc.
Mohi-uddin further said the central bank will increase its annual stimulus program to 100 trillion yen from 80 trillion yen, cut the deposit rate from -0.1 percent to lower debt on yields and boost purchases of exchange traded funds. This he said should send the yen to 115 a dollar by the end of June.
Currently, options traders are paying a premium of 1.4 percent points for one-week contracts to buy the dollar against the yen as speculation builds that officials will act.
