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Bank of Japan may clarify curbs on ETF buying when stocks gain: sources

This photo shows the Bank of Japan headquarters building in Tokyo's Chuo Ward. (Mainichi)

TOKYO (Kyodo) -- The Bank of Japan may clarify in March that it will curb buying of exchange-traded funds when share prices are rising, in response to criticism of its growing presence in the Japanese stock market, sources with knowledge of the matter said Thursday.

    The BOJ is conducting a review of its policy tools, with an announcement of its findings scheduled after its policy-setting meeting next month. BOJ Governor Haruhiko Kuroda has said the assessment is intended to make its monetary easing more effective and sustainable now that its 2 percent inflation target is further off amid the coronavirus pandemic.

    The buying of ETFs, investment products comprising a variety of stocks which track key stock indices such as the 225-issue Nikkei and Topix, has buoyed investor sentiment and lent support to the Japanese stock market.

    The BOJ can buy ETFs at an annual pace of 6 trillion yen ($56 billion) in principle, with the upper limit set at 12 trillion yen.

    The Japanese central bank is expected to emphasize that it will continue to buy ETFs as a major pillar of its monetary easing. One option is to remove the 6 trillion yen target while keeping the 12 trillion yen cap, according to the sources.

    The Policy Board is expected to discuss the option at the March meeting and make a final decision, the sources said.

    The BOJ said in its most recent post-meeting statement that it "may increase or decrease the amount of purchases depending on market conditions."

    The extraordinary ETF buying by a central bank has helped stabilize financial markets at a time of turmoil. But it has also drawn criticism that financial market conditions have been distorted.

    The Nikkei index topped 30,000 earlier in the week for the first time in over three decades, leading critics to call the stock rally an asset bubble when the real economy is still hurting amid the pandemic.

    The BOJ launched its ETF buying in December 2010 to revitalize the economy by lifting household and corporate sentiment.

    The maximum limit for central bank purchases was initially set at around 450 billion yen a year but the amount has increased to 12 trillion yen.

    After stepping up ETF purchases, the BOJ's holdings mushroomed to around 50 trillion yen in market value, equivalent to around 7 percent of the market capitalization of listed firms on the First Section of the Tokyo Stock Exchange.

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