BOJ buys record $7.8 billion of Japanese ETFs to support market

TOKYO / Reuters

The Bank of Japan (BOJ) bought the largest amount of exchange-traded funds (ETFs) on record in March as the central bank supported a market hit by a rising yen and fears of a global trade war. The central bank, which usually buys ETFs to support the market when shares fall in morning trade, said it bought a total of 833 billion yen ($7.82 billion) in ETFs in March.
It was the largest monthly purchase since the central bank started buying ETFs in the end of 2010 as part of its quantitative and qualitative easing programme aimed at pulling the economy out of deflation. The BOJ bought 1.9 trillion yen in ETFs in January-March, about 30 percent of its annual purchase goal, according to data it released on March 30.
In 2016, the BOJ doubled its annual acquisition target to 6 trillion yen. The yen has firmed as a sharp jump in global market volatility and escalating US-China trade tensions have prompted investors to look for less risky bets.
The Nikkei share average drop-ped 2.8 percent last month and hit six-month lows, after falling 4.5 percent in February. Market analysts expect the Nikkei to remain volatile in the coming months as worries about a trade war cloud the outlook for world growth.
Traders also worry that Japan Inc will have to lower their foreign exchange assumptions for the fiscal year through March 2019, which would reduce manufacturers’ profits made abroad.
“In terms of high stock prices and high valuations, risk premium is low now compared to the beginning of ‘Abenomics’ so we can assume that the BOJ is ready for tapering. But the centralbank seems to have a different idea,” said Yoshinori Shigemi, global market strategist at JPMorgan Asset Management.
“The market will likely continue seeing high volatility for the time being, so the BOJ is likely to keep up with the current purchase pace for a while.” BOJ Governor Haruhiko Kuroda said it was premature to debate when and how the central bank should slow its purchases of ETFs.
Kuroda was reappointed for another five-year term by premier Shinzo Abe, who hand-picked the former top currency diplomat in 2013 to deploy aggressive monetary easing as one of three arrows of his “Abenomics” policies to reflate growth.