The Coming Week in Asia: Sogo Bankruptcy Muddies Policy Waters

TOKYO -- When Sogo, one of Japan's largest department store operators, filed Wednesday for bankruptcy under court protection with $18 billion in liabilities, the first question traders asked was how the collapse would affect monetary policy.

Sogo's failure has thrown a big question mark out there. When they meet on Monday, will Bank of Japan policymakers raise the overnight call loan rate, akin to the fed funds rate , by 25 basis points to around 0.27%? Or will the bank keep its extraordinary zero-interest rate policy until the fall to avoid any controversy in the wake of the nation's second-largest corporate collapse?

"Should bank shares come under selling pressure due to (Sogo's) failure, the BOJ may have to concede that the very condition that spurred zero rates in the first place has not been adequately resolved," said Tim Kerans, strategist at Barclays Capital. Before Sogo's failure, it was widely believed that the BOJ would do nothing. ...