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Free AccessMNI INTERVIEW: BOJ Should Reduce ETF Buying: Ex-BOJ Momma:
ETF Purchases Not Helping BOJ Hit It 2% Price Target
The Bank of Japan should reduce its purchases of Exchange Traded Funds to near zero, as they have no impact on helping hit the 2% price target and there is no need to stabilize financial markets at the current time, a former BOJ executive director told MNI this week.
Purchases of ETFs at the current rate are unsustainable and the BOJ should pare and then stop buying as quickly as possible, Kazuo Momma, now executive economist at Mizuho Research Institute, told MNI on Wednesday.
According to Momma, the central bank should maintain the wording in its statement, offering to buy ETFs at "an annual pace with the upper limit of about JPY12 trillion" mainly to keep a psychological platform in place for financial markets.
If the BOJ leaves its wording unchanged, "it will prevent market players speculating over unwinding of easy policy," he said.
"Even if the scale of ETF buying falls to zero, it doesn't mean that the bank breaks its promise to buy ETF at an annual pace of about JPY12 trillion," he added.
Also, by leaving the wording in place, it gives the central bank room to manoeuvre and buy ETFs if markets become destabilized, as in March, he said, but again saying "the BOJ must restrain its purchases of ETF under the current situation".
NO PRICE TARGET
Momma also pointed out that with the BOJ having stepped back from chasing its 2% price target any time soon, there was no need to pursue ETF buys with the aim of helping to achieve it.
Momma even downplayed the whole idea of a 2% price target now, saying hitting it will "not happen anytime soon and even when it does, easy policy is unlikely to be unwound as the BOJ will allow an overshoot in the same way the U.S. Federal Reserve will and the ECB will probably do.
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.