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Bank of Japan has about $125 bil. in unrealized profits from ETF buying

Bank of Japan Governor Haruhiko Kuroda. (Mainichi)

TOKYO (Kyodo) -- The Bank of Japan has roughly 13 trillion yen ($125 billion) in unrealized profits from its holdings of exchange-traded funds after stepping up asset-buying to support the economy amid the coronavirus pandemic, Governor Haruhiko Kuroda said Wednesday.

    Speaking in parliament, Kuroda said the BOJ's ETF buying is aimed at supporting the economy and not at boosting share prices, shrugging off criticism that the unprecedented move has been distorting financial markets.

    The break-even point for the central bank's holdings is seen at around the 21,000 mark of the 225-issue Nikkei stock index, according to the governor, who gave a rough estimate. The index ended Wednesday at 28,635.21.

    The BOJ's ETF buying, which started a decade ago, is increasingly in focus as the central bank is reviewing its policy tools to make monetary easing more effective and sustainable now that the pandemic has moved the bank's elusive 2 percent inflation target further away.

    The central bank has become a top holder of Japanese stocks after its ETF holdings stood at more than an estimated 45 trillion yen in market value late last year, or about 7 percent of the market capitalization of companies listed on the First Section of the Tokyo Stock Exchange.

    As of late September, unrealized profits from the BOJ's ETF holdings stood at 5.85 trillion yen.

    "We do not intend to end the current framework of monetary easing, which includes ETF purchases," Kuroda said during a Budget Committee session of the House of Councillors. "If we get close to the 2 percent target, we would discuss an exit with respect to easing itself, but we have not reached that stage."

    "In the spring of last year when markets were in confusion, we bought (ETFs worth) over 200 billion yen almost every day. But recently, the frequency of buying has fallen sharply and the amount has become much smaller," Kuroda said.

    The country's core consumer price index excluding volatile fresh food is still far from the 2 percent goal. It fell 1.0 percent in December from a year earlier, the fastest pace in over a decade, hurt by weak oil prices and a drop in accommodation fees due to the government's "Go To Travel" tourism-boosting program.

    The prospect of protracted monetary easing has raised concerns about its side effects, which Kuroda has said need to be addressed.

    BOJ watchers say the bank wants to be more flexible in buying ETFs without being bound by its limit, which is currently set at an annual pace of 12 trillion yen. The findings of the bank's review on monetary easing policy tools are expected to be unveiled in March.

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