BoJ Review - December 2020: Keeping the Liquidity Flowing

• The Bank of Japan left its headline monetary policy settings unchanged as expected, but tweaked its scheme focused on corporate liquidity provisions, extending its duration by 6 months, out to the end of September 2021 (meeting expectations), while noting that further extension will be considered. if necessary. The tweaks surrounding the specifics of the corporate liquidity provisions (see full statement for details) weren't gamechangers, but provide more flexibility within the scheme.
• Elsewhere, the Bank also noted that there is no need to change its monetary policy framework of QQE with YCC, but did reveal that it will assess various measures under this framework and make public its findings, likely at the March 2021 monetary policy meeting. This was a source of surprise, although it was flagged just ahead of the decision, via a Nikkei source report.
• What does this mean? It is hard to say. Given the Bank's commitment to its JGB purchase scheme (and the prior removal of the upper limit of such purchases), negative rates and its current inflation targeting policy (made evident across a combination of the statement and Governor Kuroda's press conference), it would seem that the Bank may look to alter its equity purchase scheme, if it does chose to alter any of its parameters. A move which is made more likely by its dominance in that space. All in all, the Bank is most likely looking for a way to make its deep monetary easing a little more sustainable.
• The Bank also reiterated its forward guidance, albeit with a greater degree of caution evident in terms of the COVID-19 situation running through the broader statement.

Please use the following link to access the full review:

BOJ Review Dec 2020.pdf