TOKYO: The Bank of Japan apparently became the largest stock investor in the country, a decade after starting purchases of exchange-traded funds as part of monetary easing, raising concerns about its influence on share prices.
The central bank began ETF purchases in December 2010 under Governor Masaaki Shirakawa, first aiming to buy 450 billion yen’s worth of ETFs.
But the program has since expanded gradually and an upper limit on its annual purchases reached as much as 12 trillion yen in March.
The BOJ owned ETFs worth 35 trillion yen in book value as of the end of November, according to the central bank.
The figure translates into 45 trillion yen in market value, exceeding ETF holdings by the Government Pension Investment Fund, previously the largest stock investor in Japan, by 200 billion yen, according to an estimate by Shingo Ide, chief equity strategist at NLI Research Institute.
Through its ETF holdings, the BOJ owns a stake of more than 5 percent in 395 companies listed on the Tokyo Stock Exchange’s first section, according to Ide.
This means that the BOJ, which does not exercise shareholder rights, is effectively a major shareholder of many companies in the country.
The BOJ’s ETF purchases have often been helping to lift prices of shares in companies with poor earnings outlooks. This partly contributes to the recent rise in Japanese stock prices amid the coronavirus pandemic.
The ETF purchases “are effective in supporting stock prices,” said Yasunari Ueno, chief market economist at Mizuho Securities Co.
But the current situation is “not desirable” as stock prices need to be determined freely by private-sector participants, Ueno said.
If stock prices plunge and the BOJ’s finances worsen, confidence in the Japanese currency will deteriorate, he said.
The BOJ “should move quickly to consider ways to sell ETFs,” said Kazuo Monma, executive economist at Mizuho Research Institute Ltd.
But BOJ Governor Haruhiko Kuroda sees no need to stop ETF purchases as the central bank has not achieved its 2 percent inflation goal.
“ETF purchases have been playing a significant role and will remain an important step,” Kuroda said.
A senior BOJ official said, “We can’t continue purchases forever.” But the BOJ has no choice but to continue ETF purchases out of fears about a stock market plunge.