• Kyodo

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The Bank of Japan refrained from buying exchange-traded funds in May, marking the first time the central bank has done so for a full month under Gov. Haruhiko Kuroda’s bold monetary easing since 2013, data showed Tuesday.

The BOJ’s opting out came after it removed a ¥6 trillion annual target for purchases to make ETF buying more flexible in March, responding to mounting criticism of the central bank’s huge presence in the stock market.

The last time that the BOJ did not make any ETF purchases for a whole month was in December 2012. Kuroda took the bank’s helm in March 2013.

The BOJ started buying ETFs — investment products based on a basket of stocks — in December 2010 under Kuroda’s predecessor Masaaki Shirakawa to prevent the worsening of corporate and household sentiment due to sharp falls in stocks and to support the broader economy.

A decade later, the BOJ became a top shareholder of Japanese stocks, partly because the coronavirus pandemic prompted it to step up purchases, but it faced criticism that such buying distorted market mechanisms.

The BOJ’s balance sheet has subsequently swollen as its total assets quadrupled to over ¥700 trillion over the past eight years under Kuroda’s leadership and ETF holdings climbed to about ¥51 trillion at the end of March.

With its 2% inflation target still far off, the BOJ, bracing for protracted monetary easing, tweaked its policy tools in March to make the current easing framework sustainable and address its side effects.

It currently sets an upper purchase limit for ETFs of ¥12 trillion a year, only targeting those linked to the Topix index of all first section issues on the Tokyo Stock Exchange.

BOJ board member Hitoshi Suzuki said in a speech last week that the BOJ needs to continue with ETF buying but it should “constrain” the rise in the pace of holdings due to its impact on the bank’s balance sheet.

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