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The Bank of Japan board will likely stand pat on monetary policy when it meets next week but it's almost certain to extend the bank's lending facilities as it moves in lockstep with the government to prevent recession from returning and focuses on easing corporate funding strains, MNI understands.
The central bank's current lending facilities are due to expire March end. The length of the extension will be closely watched - estimates are for six months - and whether the BOJ eases their criteria given the severe hit to the service sector from social distancing rules.
The government announced additional economic stimulus measures on Tuesday to stop the economy from falling into a recession amid the upswing in coronavirus cases.
Downside risks to the economy and prices remain large and the economy is likely to slow in coming months with reduced movement impeding economic activity. However, BOJ officials will keep the baseline scenario that the economy is likely to follow an improving trend.
The central bank's two-day policy-setting meeting ends Dec. 18.
The BOJ board will review the medium-term outlook for economic growth and the inflation rate at its next meeting on Jan. 20-21 based on economic data available at that time.
Bank officials are worried that prolonged economic weakness will restrict capital investment and increase the likelihood that businesses may lower retail prices to boost demand. The results of the BOJ's December Tankan business sentiment survey due Monday will be crucial in that regard.
The BOJ will also incorporate the impact of the third supplementary budget into its outlook report. The cabinet on Tuesday approved a stimulus package worth roughly JPY73.6 trillion, aiming to shore up the economy.