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Banking & Finance

BOJ steps up REIT buying, scales back ETF purchases

TOKYO -- A Bank of Japan move to sharply reduce the pace of its exchange-traded fund purchases has caught the market by surprise. Its accelerated buying of real estate investment trusts was widely anticipated, however.

   The central bank this month boosted real estate investment trust purchases to 300 million yen ($2.83 million) at a time, up from 100 million yen blocks late last year. Given the new annual purchase cap that took effect at the start of the year, the increase was largely expected.

   "The BOJ is making clear its intention to support the REIT market, giving a sense of relief to the market," says Hiroshi Torii, senior analyst at SMBC Nikko Securities.

   Meanwhile, the bank has curtailed purchases of exchange-traded funds, going against what many had anticipated. Although the buying size on Monday was the same as in December, at 20.8 billion yen, the two purchases that followed amounted to only 12.8 billion each.

   The BOJ was widely thought to be following an unwritten rule, dubbed the 1% rule: it would buy ETFs when the Topix index of all issues on the first section of the Tokyo Stock Exchange fell more than 1% in the morning session. In the latter half of 2013, the bank apparently relaxed that rule, sometimes buying even when the decline was less than 0.5%.

   "The BOJ is now less predictable as to how much it would buy, based on what rules," says Shingo Ide, chief researcher at the NLI Research Institute.

   This year, the annual cap for ETF purchases by the BOJ is set at around 1 trillion yen. Assuming the bank continues to buy ETFs in 12.8 billion yen blocks, it can make 78 purchases before reaching the cap. Last year, it made 57 ETF purchases.

   Some say that the BOJ is trying to curb purchases early in the year so it can increase purchases later when Japanese stocks come under selling pressure as Japan raises the sales tax in April and the U.S. moves to scale back quantitative easing.(Nikkei)

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