Bank moving cautiously with ETF buying to preserve firepower
MAKOTO NAKANISHI, Nikkei staff writer
TOKYO -- The Bank of Japan is not buying exchange-traded funds as aggressively as expected after its decision in July to double annual purchases -- a move seen as a deliberate attempt to retain policy firepower for later.
The central bank said Aug. 2 that financial authorities had given the all-clear to a policy change raising the target for ETF purchases from roughly 3.3 trillion yen ($32.8 billion) a year to around 6 trillion yen. But the bank actually bought the instruments on just three days between then and Wednesday: Aug. 3, Aug. 4 and Aug. 10. Purchases on Aug. 3 totaled 34.7 billion yen, the amount typical before the policy shift, before finally doubling to 70.7 billion yen on the other two dates.
Doubling annual buying requires the BOJ to snap up 24 billion yen in ETFs per trading day, putting the central bank a good deal behind schedule at present. Investors had expected the expanded policy to give the stock market a lift. But many now wonder when the BOJ will finally show its strength.
The BOJ does not make public the process by which it buys ETFs, for fear of unduly influencing the market. But an official offered a passing reference to "last October" by way of explanation for the conservative approach.
At the end of September 2015, the BOJ had spent nearly 2.5 trillion yen of the 3 trillion yen or so it planned to put into ETFs that year. Much had gone to combat the stock price slide of last summer as China's economic weaknesses came to the fore. Roughly 300 billion yen went into the funds in August alone.
At a constant pace of buying, meeting last year's ETF quota would have taken around 250 billion yen in spending each month. But the surge earlier in the year left just 500 billion yen, or two months' worth, for all of the October-December quarter.
The central bank's policies carry a good deal of weight, meaning market players will exploit any sign of its weakness or limitations. The BOJ restricted ETF buying to just one day in October, stocking up ammunition for use against stock turbulence at the end of the year. But as 2015 drew to a close, market players nevertheless began to suspect that the bank was out of options. An extra 300 billion yen ETF purchase quota added at the BOJ's December policy meeting was viewed merely as a tack-on measure and failed to keep share prices from entering a slide.
This year, too, speculation around U.S. interest rate hikes makes a stock market slide near the end of the year a real possibility. Last year's trials show that there is little need to push ETF purchases now, when share prices are at a standstill. The BOJ does not explicitly define its buying as a stock price control measure. But eschewing a regular buying schedule to tailor purchases to market movements speaks to a significant level of concern about staving off another slide.