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Stocks

Japan's central bank nearly doubles ETF holdings in one year

Purchases are timed to stabilize stock prices

The Bank of Japan building in Tokyo.

TOKYO -- The Bank of Japan has stepped up purchases of exchange-traded funds as part of its monetary easing policy, with the balance surging to 15.93 trillion yen ($144 billion) as of March 31.

The total marks an 80% rise from a year earlier and more than a sevenfold increase since the central bank kicked off its quantitative and qualitative easing -- adding riskier assets to its balance sheet -- in April 2013. ETF purchases have gradually increased under the unconventional policy, expanding to 6 trillion yen a year in July 2016 from 3.3 trillion yen.

The bank apparently buys frequently on days when the stock market dips in the morning, serving to stabilize share prices.

"The BOJ's ETF purchases help provide resistance to selling pressure against Japanese stocks," says Rieko Otsuka of the Mizuho Research Institute.

Should the current pace of buying continue, the BOJ's ETF holdings would reach about 30 trillion yen in about two years. The market capitalization of the Tokyo Stock Exchange's first-section companies comes to 550 trillion yen.

The bank's growing market presence has raised concerns about the repercussions when the easing policy eventually winds down. When speculation of a BOJ exit grows, the anticipated cutbacks on ETF purchases would accelerate selling of Japanese stocks. As a precaution against a sharp market decline, "the BOJ many need to set aside provisions," Otsuka says.

(Nikkei)

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