Central bank tweaks exchange-traded fund buying pattern

  • Banking
  • Tuesday, 23 Jun 2020

Reassuring investors: Pedestrians cross the street in front of the Bank of Japan headquarters in Tokyo. The central bank has made its buying pattern more flexible of late. — AFP

TOKYO: The Bank of Japan’s (BoJ) surprise stock market purchases last week raised some eyebrows, but the move has reassured investors that the central bank has no immediate plans to taper asset support amid deepening worries about a second coronavirus wave.

The exchange traded fund (ETF) purchases on Friday, part of the BoJ’s massive asset-buying programme, marked an apparent break in its unwritten but widely-known pattern of support.

Normally, the BoJ buys Japanese shares when the benchmark Topix drops by more than 0.5% in morning trade. But on Friday it bought 100 billion yen (US$935mil) ETFs even though the Topix fell 0.34% by midday.

“The BoJ has made the buying pattern more flexible. It now makes a comprehensive judgement by taking multiple factors into account, including the Nikkei’s levels and the yield spread between stocks and government bonds, ” said Shingo Ide, chief equity strategist at NLI Research Institute.

That was the second time in the past two months that the BoJ stepped out of its usual pattern. On May 15, it made a surprise purchase even though the Topix dropped 0.31% by midday. On that day, however, the Nikkei sank below the psychologically significant 20,000-mark.

In March, the BoJ pledged to double the pace of its ETF buying to up to 12 trillion yen a year to help bolster the ailing economy, but the pace has slowed sharply since May.

NRI’s Ide suspects the BoJ’s surprise action on Friday was a deliberate demonstration of its willingness to support the market.

Others also think the central bank is ready to buy more. Rather than tapering, the BoJ is likely to be saving ammunition for later this year in case a second coronavirus wave triggers a market double-dip.

“I think governor Haruhiko Kuroda won’t hesitate to triple the daily purchase amount to cope with emergency situations, ” said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities. — Reuters

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