The Bank of Japan is expected to maintain highly accommodative monetary conditions through 2020 and beyond, continuing the policy outline of “Quantitative and Qualitative Monetary Easing with Yield Curve Control”, according to a Scotiabank research report. The Japanese central bank is likely to maintain the short-term policy rate and the 10-year bond yield target at -0.1 percent and around 0 percent, respectively, for some time.
Against the background of heightened global uncertainties and late-cycle dynamics, the BoJ’s monetary policy room seems fairly limited. If the central bank needs to boost the economy further in the quarters ahead, it might possibly provide funds to banks through its Loan Support Program with a negative interest rate.
“Alternatively, it could take the negative interest rate even lower—e.g. to -0.2 percent—and strengthen its forward guidance, and/or coordinate a stronger combined fiscal and monetary stimulus program”, added Scotiabank.
