BOJ should restrain ETF buying when markets calm, says board member Suzuki

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BOJ should restrain ETF buying when markets calm, says board member Suzuki


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Economy4 hours ago (May 26, 2021 02:41AM ET)

BOJ should restrain ETF buying when markets calm, says board member Suzuki
© Reuters. FILE PHOTO: A man wearing a protective mask walks past the headquarters of Bank of Japan amid the coronavirus disease (covid-19) outbreak in Tokyo, Japan, May 22, 2020.REUTERS/Kim Kyung-Hoon

By Leika Kihara

TOKYO (Reuters) -The Bank of Japan should restrain its purchases of exchange-traded funds (ETF) when markets are calm to prevent its holdings from increasing as much as possible, board member Hitoshi Suzuki said on Wednesday.

In a review of its policy tools in March, the BOJ ditched a numerical target on the pace of its purchases of ETFs and real-estate trust funds (REIT) as part of efforts to make its massive stimulus programme more sustainable.

“It’s important to be mindful of the BOJ’s financial health in buying ETFs and REITs,” Suzuki said in a speech. “As the BOJ’s holdings increase, the impact on its financial health becomes bigger,” he added.

Suzuki, however, said it was too early to consider an exit strategy for the BOJ’s ETF purchases, signalling the bank had no immediate plan to stop buying or sell its holdings.

Suzuki said he was “somewhat disappointed” to see Japanese bond yields move in a tight range, despite steps the BOJ took in March to allow long-term interest rates to move more flexibly around its 0% target.

But he said the BOJ won’t intentionally create volatility in the bond market, underscoring the difficulty it faces in trying to breathe life back to a market made dormant by its dominance.

Suzuki also said the BOJ was ready to consider new schemes, if necessary to meet the changing funding needs of companies suffering from the prolonged hit by the pandemic.

Under a policy dubbed yield curve control (YCC), the BOJ guides short-term rates at -0.1% and pledges to cap long-term rates around zero. It also buys government bonds and risky assets such as ETFs to revive the economy.

A former commercial banker, Suzuki is among those in the BOJ’s nine-member board who are more mindful of the rising cost of prolonged easing.

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