By Leika Kihara and Takahiko Wada
TOKYO (Reuters) – The Bank of Japan is expected to ease monetary policy next week in an attempt to limit the impact of the coronavirus outbreak and recent market volatility on business sentiment, sources familiar with the central bank’s thinking told Reuters.
While there is no consensus yet on what steps the BOJ should take, increasing the size of its exchange-traded fund (ETF) purchases is among the most likely options, the sources said.
“It’s impossible to fight the coronavirus with monetary policy. But it can play a role in breeding confidence among the public, which the BOJ may need to do next week,” one source said, on condition of anonymity.
“The BOJ must avoid the market volatility from triggering a downward spiral in the economy via souring sentiment,” another source said, a view echoed by two other sources.
The plan is preliminary and subject to change as the BOJ’s nine-member board has yet to engage in fully-fledged talks on the preferred next step, the sources said.
The BOJ has been under pressure to loosen monetary policy at its March 18-19 rate review as slumping stock markets, a spike in the yen and jitters over the epidemic threaten to curtail corporate investment and derail a fragile economic recovery.
Pledging to buy ETFs at a faster pace would help put a floor under the stock market and prevent business sentiment from worsening too much as a result of slumping prices, the sources said.
(Reporting by Leika Kihara and Takahiko Wada; Editing by Alexander Smith)