BOJ's ETF buying not distorting markets, Kuroda says

TOKYO (Reuters) – Bank of Japan Governor Haruhiko Kuroda on Wednesday rebuffed criticism that the central bank’s purchases of exchange-traded funds (ETF) were distorting markets, suggesting it will make no major tweaks to its asset-buying programme for the time being.

Kuroda also said the BOJ’s ETF holdings were likely reaping unrealised profits of around 12-13 trillion yen ($116 billion-125 billion) due to recent rises in Tokyo stock prices.

“I don’t think our ETF buying is distorting the Tokyo stock market,” Kuroda told parliament, when asked by an opposition lawmaker about the potential side-effects of its asset buying.

“We are buying ETFs as part of a comprehensive monetary easing framework. We have no plans now to end the framework or our ETF purchases,” he said.

A rough estimate shows the market value of the central bank’s ETF holdings will not fall below book value unless Tokyo’s Nikkei stock average slides below 21,000, he said. The Nikkei stood around 28,628 on Wednesday.

The BOJ currently pledges to buy up to 12 trillion yen of ETFs per year as part of its massive stimulus programme.

The purchases have recently drawn criticism from investors and some lawmakers, who say it is distorting stock prices and exposing the BOJ’s balance sheet to excessive market risk.

Its holdings now total around 35 trillion yen, accounting for roughly 80% of Japan’s ETF market.

But despite years of purchases, the BOJ only owns about 7% of total shares listed in the Tokyo Stock Exchange, Kuroda said, playing down concerns it was dominating the market.

“The frequency of our ETF buying has fallen sharply recently, as well as the size of each purchase,” Kuroda said. “We’re buying flexibly looking at market developments.”

With the coronavirus pandemic seen forcing it to maintain its stimulus programme for years to come, the BOJ will examine its policy tools to make them more “sustainable and effective” in a review due in March.

Sources have told Reuters the BOJ will make no big changes to its asset-buying schemes, but discuss ways to dial back ETF purchases without stoking market fears of a full-fledged retreat from ultra-loose policy.

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