The Bank of Japan is set to keep monetary policy ultra-loose on Friday but may dial back emergency pandemic-funding, less than 48 hours after the U.S. Federal Reserve signaled an imminent end to stimulus as policymakers respond to soaring global inflation.
The BOJ's anticipated decision, underpinned by cautious optimism that the economic damage wrought by coronavirus crisis is gradually healing, will put it in line with major central banks' moves to phase out crisis-mode policies.
Markets will be focused on Governor Haruhiko Kuroda's comments on the inflation outlook, and how the Fed's signal of three rate hikes next year could affect the BOJ's policy path.With slow wage growth and soft consumption shackling inflation close to 0%, Kuroda is likely to reassure markets the BOJ will lag way behind its major counterparts in turning off the money tap, let alone raise interest rates.
"That may prod the BOJ to start dropping hints next year of future policy normalisation. But actual execution will be some time off," she said. Sources have told Reuters the BOJ may taper its corporate bond and commercial paper purchases given sharp improvements in big firms' funding conditions.Another funding scheme targeting smaller firms may be scaled back, too, though a portion of it could be extended beyond March to keep supporting cash-strapped retailers, the sources said.