MNI INSIGHT: BOJ To Extend Facilities After Stimulus Package

The Bank of Japan is expected to announce an extension to its lending facilities, which are due to expire end-March, after the government drafts an additional stimulus package most likely in November, MNI understands.

The aid package could come after the release of Q3 gross domestic product data on Nov. 16. The third supplementary budget, which will finance the stimulus, is expected to be ready by year end.

BOJ Governor Haruhiko Kuroda has already flagged the possibility of extending the lending facilities. The central bank has two more meetings scheduled for the rest of the year, on Oct. 28-29 and Dec. 17-18.

The new fiscal stimulus package will include measures to support workers as well as corporate financing, which is also a priority for the central bank.

BANKS' DEMANDS

Although their measures are unrelated, both the government and the central bank see easier corporate financing as key to underpinning a recovery.

The aid package will therefore prompt the BOJ to extend its lending facilities as they were based on the government's emergency economic measures.

Bank officials judge that the BOJ's facilities have stabilized financial markets and they are considering extending or strengthening them as a cushion.

The BOJ is buying commercial paper and corporate bonds and accepting some as collateral for daily operations thereby meeting banks' demands.

The central bank is also supporting financial markets through other measures, such as by buying ETFs and J-REITs and providing dollar liquidity.