MNI BoJ Preview - June 2021: Ensuring Corporate Liquidity & Not Much Else

Executive Summary:

• The BoJ's June meeting should ultimately prove to be a very bland affair, with no changes in monetary policy expected. There are also no expectations for tweaks to the Bank's overarching economic view and forward guidance, as it continues to fight the well-documented disinflationary forces in play in Japan.
• Outside of the usual plethora of monetary policy settings and forward guidance, most look for the Bank to extend the life of its special program to support financing in response to COVID-19 by 6 months (currently set to expire come the end of September).
• In sum, not much has changed since March and the Bank is set to be on hold for the foreseeable future as it looks to generate inflationary forces.

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MNI BoJ Preview Jun2021.pdf

The BoJ's June meeting should ultimately prove to be a very bland affair, with no changes in monetary policy expected. There are also no expectations for tweaks to the Bank's overarching economic view and forward guidance, as it continues to fight the well-documented disinflationary forces in play in Japan.

10-Year JGB yields have fallen since the BoJ formally outlined its permitted 10-Year JGB yield trading band for the first time (at the end of its March meeting and highly anticipated monetary policy review), with U.S. Treasury yields retracing from their recent extremes over the same period. While the trajectory and direction of the move back towards the 0% mark (the mid-point of the permitted band) will not faze the Bank, it will want to see a greater variance in intraday moves. Also, the fact that several benchmark bonds have failed to trade on some days since the March meeting will be a source of (at least) some concern, given its appetite to promote smoother market functioning.

Outside of the usual plethora of monetary policy settings and forward guidance, most look for the Bank to extend the life of its special program to support financing in response to COVID-19 by 6 months (currently set to expire come the end of September). The Bank could of course delay this move until the July decision, but the government's recent move to extend the life of its own support measures for corporate finance through the end of the year means that there is little reason to push back any such move. An extension of the Bank's support for corporate finance would also dovetail nicely with government policy surrounding the matter, creating a more holistic environment.

In sum, not much has changed since March and the Bank is set to be on hold for the foreseeable future as it looks to generate inflationary forces.