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December 16, 2020 at 07:25AM

The Bank of Japan is expected to keep monetary policy steady on Friday and hope the extension of an existing fund-aid package will give companies enough time to weather the hit from a recent resurgence in coronavirus infections. A stable yen, rising stocks and rebounding overseas demand have offered some breathing space for policymakers struggling to underpin a fragile recovery with a dearth of ammunition.

But lingering fears over the pandemic have kept service demand weak. Mounting COVID-19 cases forced the government to suspend a discount programme aimed at propping up spending on travel – but criticized for spreading the virus. With the outlook highly uncertain, the BOJ is likely to decide on Friday to extend a range of steps aimed at easing corporate funding strains as a precaution against the deepening pain from COVID-19, sources have told Reuters.

The central bank, however, is set to keep its interest rate targets steady at the two-day rate review ending on Friday, and maintain the view the world’s third-largest economy will improve moderately as a trend.

The dollar/yen has moved in a tight range recently and stood around 103.50 yen on Wednesday. A move below 100 yen usually triggers verbal warning by Japanese policymakers worried about the impact a strong yen could have on exports. Under a policy dubbed yield curve control, the BOJ guides short-term rates at -0.1% and 10-year bond yields around zero.

The BOJ also created a package of measures to cushion the blow from COVID-19 in March through May, which included an increase in purchases of corporate debt and a creation of a new lending facility to channel money via banks to cash-strapped firms. Markets widely expect the BOJ to extend the deadline for the package as the resurgence in infections cloud the outlook.

The government last week announced a fresh $708 billion economic stimulus package to speed up the recovery, bringing the combined value of Japan’s pandemic-related spending to about $3 trillion.

BOJ to hold fire in hope extending aid programmes will keep pandemic pain at bay, Reuters, Dec 16

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From: The FxPro News Team https://fxpro.news/daily-forex-outlook/boj-to-hold-fire-in-hope-extending-aid-programmes-will-keep-pandemic-pain-at-bay-20201216/
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