Japan’s economy needs a hand. Can the central bank ease the pain?

Japan’s economy needs a hand. Can the central bank ease the pain?

Just at the beginning of this month, the Japanese government approved a stimulus package worth $990 billion. It represents 20% of Japan’s GDP.

At that time, Prime Minister Abe said that BOJ would sell bonds worth more than 18 trillion Yen, which is roughly $167 billion to fund the package. No drastic measures were applied then, with transportation following regular schedule, and no penalties applied to citizens if the underlying social restrictions weren't followed.

At the last meeting, BOJ doubled the ETF purchase to 12 trillion yen ($111 billion). After approving one of the biggest stimulus programs proposed in Japan since 2008, it seems the economy needs more easing.

Now, BOJ is said to discuss at the next meeting some alternative ways to ease the corporate funding strains. The goal is to inject more money into small businesses that will not be able to recover from the outbreak. Also, in March, BOJ supplied the loans in collateralized Yen by 2.11 trillion ($19 billion), with an average term of 14 days. Another 180 billion yen ($ 1.6 billion) is necessary for buying Japanese real-estate investment trusts.

Some options appeared, such as buying more corporate bonds and commercial paper and various assets that the central bank will accept as collateral in exchange for loans. A source familiar with the matter said that "Corporate funding conditions continue to worsen. The focus for the BOJ is still crisis response, not what measures it can take to reflate the economy."

Overall, during the first quarter of 2020, the central bank added 30 trillion Yen ($278 million) worth of bonds, stocks, and assets, along with 35 trillion yen ($325 million) of liquidity via agreements and dollar loans.

Being one of the world’s most significant economies, Japan’s is closely watched by analysts. They expect the central bank to keep on going with the ETF and risky asset purchases, and for the country’s benchmark, Japan225, to have a stock average quote bigger than 20,000. The index lost a third of its value since January, reaching its lower point on March 19. Since then, it managed to regain 19% of its value, closing Tuesday at 19,638 points.

The next BOJ meeting will take place on April 27-28.

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Sources: yahoo.com, businesstimes.com.sg, wkzo.com

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The information presented herein is prepared by CAPEX.com and does not intend to constitute Investment Advice. The information herein is provided as a general marketing communication for information purposes only and as such it has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is not subject to any prohibition on dealing ahead of the dissemination of investment research.

Users/readers should not rely solely on the information presented herewith and should do their own research/analysis by also reading the actual underlying research. The content herewith is generic and does not take into consideration individual personal circumstances, investment experience or current financial situation.

Therefore, Key Way Investments Ltd shall not accept any responsibility for any losses of traders due to the use and the content of the information presented herein. Past performance is not a reliable indicator of future results.