BOJ Preview - December 2020: Keeping Things Liquid

• The Bank is set to leave its benchmark interest rate, 10-Year JGB yield target and broader asset purchase schemes unchanged. The Bank is also set to reaffirm its own brand of forward guidance, alongside its willingness to provide further easing, if required.
• We should expect the traditional dovish dissent from board member Kataoka.
• Focus falls on the potential for an extension of the Bank's corporate liquidity provisions. Such a move is now expected, with most looking for a 6-month extension of the scheme, through September 2021. We would argue that the horizon of the extension that the Bank selects is relatively inconsequential, assuming it does extend the deadline beyond the current sunset of March 2021, as it will not represent a hard deadline for the scheme as it can always be extended/expanded.
• On the market side of the equation, 10-Year JGB yields have moved towards the mid-point of the Bank's permitted range (0%) in recent weeks, while the curve has steepened, which will no doubt please the Bank (although a lower than potential issuance burden surrounding the latest supplementary budget has seen curves move off of their respective steeps).
• USD/JPY has consolidated below Y105.00 in recent weeks. The Bank hasn't expressed anything in the way of notable discontent re: the move in the cross, as its velocity hasn't been particularly fierce and has come against the backdrop of a generally softer USD.

Please use the following link to access the full preview:

BOJ Preview dec 2020.pdf