21 January, BOJ (Bank of Japan), ECB (European Central Bank), and CBRT (Central Bank of the Republic of Turkey) will announce their monetary decisions. A busy day for the markets is to be expected.
BOJ
In the December meeting, BOJ added 6 months to the Covid-19 support program for struggling firms. Since then CPI fall -%0.9, state of emergency widened because of the new Covid-19 wave, household activity dampened. But markets don’t expect a major move from BOJ until the March meeting, only some possible tweaks.

• Nikkei 225 is at the highest level since 1990 and starting from November, BOJ is officially the biggest single owner of Japanese equities. BOJ is buying exchange-traded funds for some time. At the last meeting, they signaled a more flexible approach. In line of that, BOJ may pause buying funds at this high levels, at least until the March meeting.
• Outstanding credit provided to firms are now over $1.1 trillion, nearly %20 of the economy. A new big move is not expected from the BOJ in this meeting.
• CPI fell to -%0.9 in November. Since then Covid-19 restrictions increased and household activity reduced even more. Inflation expectations in the short-term is suggesting it may even get worse. BOJ may downgrade economic projections for 2021.
• Low USDJPY currency is increasing deflationary pressures. According to surveys, if the price fall below 95, this may triggers a new set of easing from BOJ.
ECB
ECB has already increased the asset purchases program but the intensifying Covid-19 restrictions causing CPI to remain in negative zone.

• EU yearly inflations continue to stay at negative zone, historic lows that only seen after the 2008 crisis. Germany’s PPI levels showed some promise today but CPI is still expected to stay in the negative zone throughout the first quarter.
• Italy’s government stays in power after the key vote on senate but still walking on thin ice. ECB started to buy more Italian bonds to limit the difference between economies bond yield, Germany and Italy. This move will most likely in favor of the euro and a high euro is not what ECB wants now.
• Economists expect negative growth from the Eurozone in the Q1. A negative revision from the ECB or indication of increasing downside risks by Lagarde at the press conference can be expected.
• PEPP may be tweaked to be more flexible. A possible front-loading without the change of total assets to buy can be seen tomorrow as one of the possible moves from the ECB.
CBRT
CBRT increased the interest rate by 675 basis points in the last two months. No further change is expected at tomorrow’s meeting.

• USDTRY fell more than %12 since the change of economic administration, Minister of Finance and the Chair of CBRT. The new head of CBRT Ağbal, increased the rates by 675 basis points to fight against rising inflation and decreasing the value of the lira.
• With the return to more orthodox policies, investors start to come back. Foreign investment of bonds and equities staying in the positive zone for 7 weeks, best streak for years.
• CBRT is expected to hold the rates tomorrow or to increase minimally. Statements in the inflation report on January 28 will be important for the markets.