MNI INSIGHT: BOJ Won't Stop Buying ETFs But May Tweak Ops

The Bank of Japan will remain committed to an upper limit of exchange-traded fund purchases as it doesn't want to spook equity market investors who could incorrectly see a scaling back as a sign of policy tightening by the central bank, MNI understands.

Policymakers are currently assessing the ETF buying policy, with the resulting decision on size and time horizon of purchases to be announced at the March policy meeting. Current thinking at the bank suggests ETF buying must be continued as it is still effective in restricting risk premium and stabilising markets.

However, most officials accept that upping the overall ETF holdings will not help in achieving the 2% price target and scaling back purchases or introducing more flexible purchases should at least be considered. But even if there is a drop in monthly purchases, the commitment to buy "at annual paces with the upper limit of about JPY12 trillion" will remain so as not to give the impression policy has changed.

TWEAK ETF OPERATION

The BOJ may consider increasing purchases of ETFs that track the TOPIX and the bank will likely clarify its stance on buying ETFs.

The BOJ hasn't got a fixed size per operation for ETF purchases. The scale of buying from October to December 2020 stood at JPY70.1 billion, but dipped to JPY50.1 billion on Jan. 4, helped by a solid start to the year for the stock market.

The BOJ is expected to emphasize that ETF operations are not set for fixed amounts and don't have any policy implication with the scale of purchases fluctuating depending on market conditions.

However, bank officials in charge of daily operations hope the board offers greater clarity on the size and timing of operations.