TOKYO -- Japan's central bank appears to be easing up on its effort to prop up domestic equities through large purchases of exchange-traded funds -- a tactic that has made it the country's top stock buyer.
The Bank of Japan is quietly tapering its purchases of Japanese government bonds -- a key component of its monetary easing program under Gov. Haruhiko Kuroda. Some surmise that the BOJ is doing likewise with ETF buying in order to trim what it sees as an outsize profile in the equity market.
In the past year, the BOJ stepped in to buy ETFs almost every day when the Tokyo Stock Price Index, or Topix, slipped more than 0.2% during morning trading. But out of three such days this month, the bank did so only on April 3, when the index dropped 0.52% in the morning. The BOJ also intervened the following day despite a morning drop of just 0.14%, but sat on its hands on April 12 and again on Tuesday, when the Topix fell 0.21% and 0.22%, respectively, in the morning.
"The BOJ won't be buying today," a Japanese securities trader conjectured Friday morning, as the 0.2% rule of thumb -- one never explicitly admitted by the bank -- appeared to be growing obsolete. Indeed, Friday marked a 12th consecutive trading session with no moves on ETFs by the bank.
In July 2016, the BOJ roughly doubled its target rate of growing ETF holdings to about 6 trillion yen ($55.6 billion) annually, which equates to 500 billion yen per month on average. But the central bank has bought only about 140 billion yen of the funds in April thus far, and the month has just five trading days left. The bank would have to buy about 70 billion yen's worth per session to get near the monthly average figure.
The BOJ says it does not disclose details about its purchasing standards, but the apparent slowdown in Japanese government bond buying, a key component of the bank's quantitative and qualitative easing program, gives the market reason to be nervous.
As of the end of March, the bank's holdings of JGBs rose about 49 trillion yen from a year earlier, falling short of the targeted annual growth pace of 50 trillion yen it originally set in April 2013 at the outset of the quantitative easing program. This scaling back of purchases is seen by some as a form of stealth tapering and has led to speculation that ETF buying would follow the same pattern.
But when it comes to monetary policy, the bank can ease back on JGB buys and still deny it is tightening, as long as it keeps key interest rates ultralow on target. On the 6 trillion-yen target for ETFs, it lacks such an escape route.
If the central bank is to lower that goal post, "it would need to either meet or walk back its target 2% inflation rate," said Takahide Kiuchi, a former BOJ policy board member and current Nomura Research Institute economist. Neither event appears likely soon, so even if April's ETF purchases come in short, the possibility remains of large-scale buys later in the year.
The bank's ETF interventions have soothed fears of decline in Japan's stock market. But it has purchased more than 19 trillion yen's worth of the funds in total through the end of March, with a market value that has reached 24 trillion yen, nearly 4% the worth of all Japanese equities. As foreign investors have stalled out, the BOJ has attained a stature impossible to ignore -- as evidenced by the market's disquiet at its potential stealth tapering of ETF purchases.