BoJ: Expanded asset purchases and introduced liquidity measures to avoid a credit crunch

• As we expected, the BoJ decided at today’s emergency meeting to expand the asset purchases on CPs, corporate bonds, ETFs and J-REITs. Furthermore, the Bank introduced liquidity measures to support companies affected by the coronavirus. The intention is to avoid a credit crunch, by supporting the real sector and, in particular, the sectors suffering from a sharp fall in sales and/or liquidity shortages.
• On the other hand, the BoJ kept the policy rate unchanged at -0.1%. This was our expectations as described in our previous report: BoJ preview: No more general rate cuts but more ETF purchases and targeted liquidity measures. A rate cut would indeed be counterproductive, as shrinking banks’ profit margins would discourage banks to lend to SMEs that are increasingly facing liquidity shortage. Furthermore, a rate cut could further weaken the Yen, pushing up import prices and thereby eroding consumer purchasing power and pushing down private consumption further.
• Although today’s decision is directed to avoid a credit crunch, the extreme risk aversion both globally and domestically might bring out additional measures other from BoJ or the ministry of finance.

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