The Bank of Japan released details on the new exchange-traded funds it wants financial companies to create as the central bank prepares to spend $2.6 billion a year on such assets.
ETFs containing companies increasing capital or research spending will be eligible for purchases when the program starts in April, the central bank said in a statement on Tuesday. Funds tracking firms that are boosting staff numbers, wages and investments in employee development will also meet the criteria, the BOJ said. The central bank will also accept ETFs designed based on how firms improve staff working conditions, help them with child care and increase training programs, it said.
The BOJ unveiled the purchasing plans in December, adding the targeted pool of cash to the 3 trillion yen ($26.5 billion) it already spends a year on broader funds. It’s the latest state-backed attempt to encourage Japanese firms to invest for growth and boost wages, rather than sit on record piles of cash, as Governor Haruhiko Kuroda and Prime Minister Shinzo Abe seek to kickstart the economy and spur inflation.
“It goes beyond hard quantitative measures and opens the door up to a qualitative assessment,” said Jesper Koll, chief executive officer for Japan at WisdomTree Investments Inc. “Everyone understands that just because you hire more doesn’t mean you’re a good investment. By adding qualitative elements, the BOJ are aligning themselves with investors and the need for better returns.”
ETFs should contain at least 100 stocks and be chosen from a field of at least 1,000 companies, the BOJ said. No firm can have a weighting of more than 5 percent. The central bank can only hold a maximum of half the market value of each fund, it said. ETFs tracking the JPX-Nikkei Index 400, a government-backed stock gauge started in 2014 that chooses companies based on return on equity and operating profit, will also be eligible for purchases.