The head of the Bank of Japan will give a press conference later in the day.
(Photo: Reuters)
Tokyo Japan’s central bank decided on Friday to phase out some monetary policy Corona aid programs. But it did not imply any rate hikes. The central bank wants to end its purchases of corporate bonds and commercial papers at the end of March as planned.
In addition, it will end the one-year interest-free loans to banks that are helping large corporations through the crisis with new loans. However, the small business program has been extended by six months. It also maintained its policy of keeping interest rates on short-term bonds below zero percent and on ten-year government bonds at zero percent.
Investors reacted negatively to the decision: The Nikkei 225 stock index fell by 1.7 percent to 28,568 points by 1 p.m. local time. In doing so, it made up a large part of the gains from the previous day, when investors reacted positively to the Fed’s suggestion of rate hikes.
Central bank chief Haruhiko Kuroda’s press conference is still pending. But many investors had apparently expected that Japan’s central bank would evade the monetary tightening of other central banks even more. In contrast to the USA and the European Union, prices in Japan have barely increased so far.
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The US Federal Reserve had already signaled on Wednesday that it would let its asset purchase program expire in March and not in June. This increases the likelihood of an interest rate hike in the next three months.
The Bank of England even initiated the interest rate turnaround on Thursday and raised the key rate from 0.1 to 0.25 percent. The European Central Bank, in turn, decided to reduce its securities purchases in April, but, like the Bank of Japan, is apparently on a more cautious course. Michael Holstein, chief economist at DZ Bank, therefore saw the ECB as just a “hint of tighter monetary policy”.
One reason for the negative reaction of the markets could also be worries about another virus wave triggered by the Omikron variant in Japan. In contrast to many other countries, the number of Covid 19 cases has remained at very low levels in recent months.
However, the economist Takeshi Yamaguchi of Morgan Stanley MUFG Securities in Tokyo is optimistic that the government would restrict everyday life even less than before, even if there was a renewed health emergency. “Even then, the Omicron variant is unlikely to plunge Japan into recession,” said Yamaguchi. In addition, the government has already decided on a new economic stimulus program worth 440 billion euros, which also includes new corona aid.
More: Exception Japan: Why there is still no inflation in Japan