Mazen Issa, senior FX strategist at TD Securities, points out that for the next week’s meeting, the BOJ does not have the typical luxury of following the Fed which is enough to prevent the BOJ from making changes to its own policy stance.
“With the Fed widely perceived as providing “insurance” rather than embarking on a full-blown easing cycle, it is not evidently clear the BOJ should feel pressured to act, even if the ECB has pre-committed itself to a package of easing. The BOJ is just further ahead of the monetary policy game. That comes with risks however, including creating financial instability.”
“Credit growth remains relatively stable indicating that banks are still willing to lend, even though loan spreads have become unprofitable.”
“In line with this, it should not come as a surprise that bank stock performance in NIRP countries have struggled mightily compared to their non-NIRP peers. This begs the question of what other fine-tune operations the BOJ could do to address the financial transmission mechanism.”
“The BOJ already employs a TLTRO equivalent loan support program to financial intermediaries. If the BOJ wants to fix the ailing banking sector, perhaps it could reimplement its 2002 bank share purchasing program or subordinated debt a decade back.”