Bank of Japan Unconcerned by Evergrande's Possible Default

Ibeth Rivero

The Bank of Japan recently decided to leave cash rates unchanged at -0.1%, in line with expectations. The institution also decided to maintain the conditions of its bond purchasing program.

Unlike other central banks in the developed world, the BoJ decided to keep its ultra-loose monetary policy stance, given its expectations about economic recovery in the long run and the progress in Japan’s vaccination campaign. However, its expect exports and output growth to slow down now that several Asian factories are shutting down due to supply bottlenecks.

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The yen is a popular asset during turbulent times.

During the speech that came after the announcement, the BoJ Governor Haruhiko Kuroda made a reference to China's Evergrande Group debt issues and its potential influence on the global financial sector.

Kuroda commented that such a problem will probably only affect the company itself and the Chinese real estate industry, though the bank would need to keep an eye on it to determine whether it is affecting global markets.

"We need to keep an eye out on whether this affects global markets. But for now, I don't see this turning into a global, bigger problem," stated Kuroda.

Evergrande Group is currently the most indebted real estate developer in the world. The fact that it is likely to pay $84 million in interest payments this Thursday concerns the world markets, as it seems to be struggling to find enough cash to meet its financial commitments. The company owes money to 171 Chinese banks and 121 other firms, so its potential default could affect local financial institutions’ lending capabilities.

Kuroda also commented that the bank expects consumption to strengthen when the impact of the pandemic fades. He highlighted that despite the fact that economic growth figures may miss projections, the foundations for economic recovery remain intact.

Japan continues struggling against the spread of the COVID-19 virus. Since the beginning of the pandemic, 1,681,120 COVID-19 cases have been reported in Japan, including 17,276 related deaths. So far, 155 million doses of the vaccine have been distributed by the Japanese government, with 69.8 million individuals now fully vaccinated, accounting for 55.3% of the local population.

The Japanese government is now considering partially lifting the state of emergency by the end of the month. Currently, 19 prefectures including Tokyo are in a state of emergency, which requires the population to avoid crowded areas, restaurants to close by 8 pm, and forbids the sale of alcoholic beverages after that time. Large events, such as sports games and concerts, are restricted.

The number of infections has diminished with time, though hospitals are still overwhelmed due to a relatively large number of COVID-19 patients in critical condition.

Since the beginning of the week, the Japanese yen has gained by 0.41% against the US dollar, breaking a two-week losing streak and closing Tuesday's session at the 0.915400 level. By 10:51 GMT, the Japanese yen gained 0.27% against the greenback, falling to the 0.912900 level.

Ibeth Rivero

Ibeth contributes daily market commentary in both English and Spanish (both of which she speaks fluently) and she also manages the DailyForex mobile app to ensure that traders around the world are getting important market updates in real time.

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