• BOJ didn’t purchase on Thursday after Topix fell in morning
  • Central bank’s buying “has a lot of impact," Nomura says

Confusion over when the Bank of Japan will buy exchange-traded funds after it almost doubled its annual purchase target is spurring volatility in the nation’s stock market.

On Thursday, the Topix index slid 0.4 percent in the morning session, creating speculation the BOJ would buy in the afternoon. The BOJ tends to step in on days where stocks fall before the break. When signs emerged that officials had stood pat, the equity gauge extended declines, ending the day down 1.6 percent. While the central bank doesn’t say whether it bought ETFs until after the close, investors can tell if it did by looking at off-exchange cross trades.

“They recently bought when the Topix fell 0.2 percent in the morning, so people were speculating that they’d purchase on Thursday afternoon, and stocks fell further when they didn’t,” said Masahiko Sato, an analyst at Nomura Holdings Inc. in Tokyo. “When we’re talking about a 70 billion yen purchase amount, that has a lot of impact. Many people take positions beforehand because of this impact, which exacerbates the effect on the market.”

The BOJ has bought ETFs under its regular purchase program four times this month. The Topix fell 0.2 percent in the morning of Aug. 4, when the bank increased its daily purchase amount to 70.7 billion yen ($705 million). On Aug. 10, when it bought the same amount again, the measure dropped 0.4 percent in the morning. The measure slid even more the other two days.

Changing Strategy

As traders try to work out what rules the central bank is using, Makoto Sengoku, a market analyst at Tokai Tokyo Research Center, says it’s difficult to make assumptions. The BOJ purchased ETFs on Feb. 8 when the Topix fell 0.2 percent in the morning, but didn’t on Feb. 24 after it lost 0.3 percent before the break, he said.

“The BOJ has changed its buying conditions between the start of a month and later on in the past,” Sengoku said. “We’ve seen special cases, like when they buy too much at the start and then stock declines are exacerbated in the second half.”

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