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Free AccessMNI POLICY: BOJ Guard Against Fed Action To Support Stocks
The BOJ is planning contingency measures in case the U.S Federal Reserve repeats its March aggressive policy approach and takes actions to support stock prices, however officials concede this isn't likely given that other financial markets remain stable, MNI understands.
The BOJ will need to arrange for measures at its policy-meeting ending Thursday in order to prepare against a surprise move to support stock prices at the Fed's meeting which finishes on Wednesday.
--BIG ASSET EFFECTS
If U.S. stock prices continue falling it could prompt the Fed to quickly take action. However, there is the risk that measures by the Fed could further overheat stock prices that are already boosted by aggressive monetary and fiscal policies.
The BOJ pays close attention to the the dollar/yen rate, and the bank wants to avoid a sharp rise in the yen as a result of a market view that it is lagging the Fed.
--LOWER NASDAQ CRUCIAL
The recent drop in the U.S. stock prices is partly a reaction to their sharp gains so far in 2020 but a lower Nasdaq could dampen market players optimism over chances for an economic recovery.
The Fed took aggressive policy measures in March when financial markets, including dollar liquidity, became volatile.
Despite the recent drop, Nasdaq remains at historically high levels and financial market are relatively stable compared to March.
The Fed pledged to maintain very low policy rates for an extended period, which in turn will continue to support financial markets.
BOJ officials feel the Fed may tweak its forward guidance following the decision to allow inflation to modestly overshoot 2%, in order to compensate for below-target periods of price rises.
However, they don't expect the Fed to introduce "outcome-based forward guidance" this week despite heightened uncertainties over the U.S. economic outlook.
BOJ officials are focused on whether the Fed's 2023 inflation rate forecast stays below 2%, compared with 1.7% in 2022, and its impact on markets. A forecast below 2% will strengthen an extended period of Fed's easing.
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Why MNI
MNI is the leading provider
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