Extra stimulus by the BoJ seen weighing on JPY – UOB

UOB Group’s Senior Economist Alvin Liew and Senior FX Strategist Peter Chia reviewed the recently announced extra stimulus measures by the BoJ.

Key Quotes

“As widely expected, the Bank of Japan (BOJ) expanded its monetary policy easing in the face of the coronavirus disease (COVID-19) pandemic’s impact on Japan and the global economy.”

“The BOJ outlook for economic activity and prices turned significantly weaker due to the severity of COVID-19. GDP is now expected to contract mildly by -0.4% to -0.1% in FY2019 before worsening to -0.5% to -0.3% in FY2020 while CPI will return to a mild deflation in FY2020 before returning to subdued price increases, not exceeding 1% on average even in FY2022.”

“The BOJ has now given explicit permission to “allow” the Finance Ministry to issue more debt (JGBs) which the BOJ in turn will buy in the secondary market. We believe the central bank will ease further down the road via deepening its negative policy call rate to -0.2% (from -0.1%), with potentially other measures to follow if the domestic economic situation turns even more dire which it most likely will, with the latest plunge in exports and industrial production.”

“Going forward, today’s dovish monetary actions are likely to bias the JPY weaker, with USD/JPY to gravitate higher towards 112 in 2Q20 and 114 in 3Q20.”