Looking at Tonight’s BoJ Meeting
Written by A Forex View From Afar on Monday, December 01, 2008The Bank of Japan has scheduled an emergency meeting for tonight, in response to the strains in the corporate debt market.
This comes, after at the last BoJ meeting, the governing council asked the bank’s members to study the possibility of extending the collateral base to also include corporate debt. The market is expecting this to be one of the main announcements the bank will make.
The decision to include corporate debt will have a positive effect on the Japanese economy. Banks will be able to raise liquidity from the central bank, using corporate loans, which make up a large part of the financial system. As a consequence, the corporate debt market would once again become liquid, making loans less costly for firms.
In the past week, the Governor of the BoJ said, in a number of speeches, that the cost of corporate debt is rising at a very fast pace, not seen since the deflationary period a decade ago. In addition, the Japanese finance minister also announced the economy may experience deflation in the coming years; something that the BoJ has battled since the mid 1990’s but has never really succeeded.
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