Deflation and yen probable focus at BoJ

Interest rates are unlikely to be the main topic of conversation at the Bank of Japan’s policy meeting, which started today: deflation and the strong yen are probably top of the agenda.

The bank is expected to keep rates at 0.1 per cent, and further measures are unlikely to be announced. Two weeks ago, the bank injected Y10,000 in 0.1 per cent three month loans, and the effects are still flowing through. Money market rates are falling and the economy is more liquid.

The BoJ will be concerned by December’s Tankan survey, which suggested companies’ capital expenditure would be 28.2 per cent lower than last year, which could worsen deflation. Deflation concerns likely encouraged the government’s new Y7,200bn stimulus package, announced December 8.

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