A Bank of Japan policy board member said the BOJ should “constrain” the rise in the amount of exchange-traded funds it buys due to the potential impact on its balance sheet, following a March review to make monetary easing sustainable.
BOJ policy board member Hitoshi Suzuki said that while it “certainly is necessary” to continue with ETF purchases as part of the central bank’s efforts toward attaining its 2% inflation goal, there will be a large impact on the bank’s balance sheet as asset holdings increase. Suzuki was speaking at an online meeting with local business leaders in Yamaguchi Prefecture on Wednesday.
The BOJ has removed a target for buying ETFs at an annual pace of ¥6 trillion ($55 billion) but maintains a ¥12 trillion upper limit for purchases.
The removal of the target, decided at the policy review in March, was aimed at addressing criticism that the bank’s buying has distorted market mechanisms, especially as the central bank has become a top holder of Japanese stocks.
“As for purchases of ETFs and J-REITs, I think that it is desirable for the bank to constrain the pace of increase in their amounts outstanding as much as possible by conducting the purchases flexibly,” Suzuki said.
J-REITs are a type of Japanese real estate investment trust.
The BOJ needs to decisively conduct purchases “on a large scale” during times of heightened market instability but refrain from buying during normal times, Suzuki said.
The buying of risky assets such as ETFs — investment products comprising stocks — is quite rare for a central bank, raising concern about its swollen balance sheet. Since April, the BOJ has exclusively bought ETFs linked to the Topix index of all first section issues on the Tokyo Stock Exchange.
Some analysts have said the removal of the ¥6 trillion target is a harbinger for tapering asset purchases, though Gov. Haruhiko Kuroda said in March that the BOJ did not intend to trim buying.
When Japanese stock markets were roiled earlier this month, the BOJ did not step in to calm market jitters by buying ETFs. Kuroda has told the Diet that the BOJ does not carry out purchases automatically according to preset rules.
In the March fine-tuning of its policy tools, the BOJ also decided to allow 10-year Japanese government bonds to move more widely even under its yield curve control program to keep both short-term and long-term interest rates low.
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