BOJʼs massive ETF buying causing concerns about side effects

July 30, 2017

TOKYO- One year after the Bank of Japan decided to boost the amount of exchange-traded funds it buys as an additional monetary easing step, concerns about side effects from the unconventional central bank step are growing. At its Policy Board meeting on July 28-29, 2016, the BOJ decided to increase its purchases of ETFs, which hold stocks and other assets, at an annual pace of 6 trillion yen from 3.3 trillion yen. Since then, the benchmark 225-issue Nikkei stock average on the Tokyo Stock Exchange has risen some 20 percent. The BOJ measure is believed to have helped prevent financial market confusion and deterioration in business and consumer sentiment after Britain's decision to exit the European Union through a national referendum in June 2016. But an increasing number of market players are concerned that the BOJ's ETF purchases may distort the stock market's price formation functions and negatively affect the central bank's financial condition. The bank decided to introduce the ETF purchase program in October 2010 under then BOJ Governor Masaaki Shirakawa. It started buying ETFs at an annual pace of 450 billion yen in December 2010. After its current governor, Haruhiko Kuroda, took office in 2013, the BOJ has increased the purchase amount in stages as part of efforts for achieving its 2 percent inflation target. The BOJ program "has created a sense of security among investors," Nobuyuki Hirano, chairman of the Japanese Bankers Association (Zenginkyo), and president of Mitsubishi UFJ Financial Group Inc., one of Japan's three megabank groups, said at a press conference earlier this month. Still, it is very unusual for a central bank to purchase stocks and ETFs. (Jiji Press)