BOJ's $2.5 Billion ETF Boost Seen Having Little Impact on Stocks

Breaking Down the BOJ's Policy Decision

Is that it?

Stock investors’ delight after the BOJ said Friday it would buy more exchange-traded funds quickly turned to disappointment at the size of the program: at 300 billion yen ($2.5 billion), it’s just a 10th of the size of the bank’s current ETF efforts. Not only that, it’s intended to offset the market impact as the central bank resumes selling stocks it purchased from financial institutions from April. The benchmark Topix index jumped and then tumbled, while the yen gained against the dollar.

The new program is in addition to the 3 trillion yen the bank already spends on ETFs each year, the BOJ said on Friday. The BOJ also said it would extend the average maturity of holdings of Japanese government bonds to seven to 12 years, and increase the amount of individual Japanese real estate investment trusts it can own. The Topix index sank 1.8 percent to 1,537.10 at the close in Tokyo, reversing a gain of as much as 2 percent.

“At 300 billion yen, it’s on the scale of margin of error. The impact to the stock market will not be big,” said Soichiro Monji, chief strategist at Tokyo-based Daiwa SB Investments Ltd. “If it’s this small, some investors will think this is the best they can do. Kuroda himself says he never does anything half-baked, but frankly speaking this is half-baked.”

Bonds, J-REITs

The BOJ kept its main target for monetary stimulus unchanged, as forecast by all but one of 42 economists surveyed by Bloomberg. The central bank will boost the maximum amount of each J-REIT it can buy to 10 percent of its total amount from the current 5 percent.

The BOJ postponed the date for completing selling stocks bought from financial institutions to the end of March 2026 from the end of September 2021, seeking to soften the effect of the sales on the equity market. Once the sales from the previous initiative start, the pace will be about 300 billion yen a year, based on the November 2015 mark-to-market date. The new ETF program, another prong in the central bank’s efforts to lessen market impact, will start by buying ETFs that track the JPX-Nikkei Index 400.

“It’s more of a complementary shift than additional easing,” said Hideyuki Suzuki, general manager of investment-market research at SBI Securities Co. “There hasn’t been a change that would make your eyes fall out.”

Kazuyuki Terao of Alliance Global Investors Japan Co. wasn’t so disappointed.

“I think the BOJ wanted to send a message that they are still maintaining the stance of QE as investors had lost expectations,” said Terao, the Tokyo-based chief investment officer at Allianz. “The news is action to change investors’ mindsets toward the BOJ.”

Kuroda Comments

Friday’s action wasn’t additional monetary easing in response to downside market risks, BOJ Governor Haruhiko Kuroda said at briefing in Tokyo after the two-day meeting. Japan’s economy is recovering gradually, he said.

“Investors were buying on hope,” said Hiroaki Hiwada, a Tokyo-based strategist at Toyo Securities Co. “But they are realizing now that it’s not actually a big deal,” he said. “People are disappointed after looking at the details closely.”