The Bank of Japan will consider completely suspending new purchases of exchange-traded funds (ETFs), which it has continued to do since 2010, when it reaches its 2% inflation target and begins to normalize policy. This was revealed through interviews with multiple parties involved.

According to people familiar with the matter, with the stock market hovering at an all-time high, the Bank of Japan has determined that there is little need to support stock prices by increasing the risk premium through ETF purchases.

Similarly, when considering abolishing or reviewing yield curve control (YCC) during the normalization phase, the Bank of Japan plans to avoid sudden fluctuations in long-term interest rates by continuing to purchase government bonds, etc., sources said. This can be said to be a contrasting response to the stock market.

The Bank of Japan purchased ETFs three times last year, totaling only 210 billion yen, but none this year. On the 11th, the Tokyo Stock Price Index (TOPIX) fell by more than 2%, which the market had seen as a guideline, but no purchases were made. With the Nikkei Stock Average hitting a new all-time high and the Bank of Japan becoming the largest holder of Japanese stocks, further purchases are likely to be questioned by investors.

The market may already be used to the Bank of Japan being cautious about ETF purchases, people familiar with the matter said.

Regarding ETF purchases, Governor Kazuo Ueda said in a parliamentary statement in February that once the current large-scale monetary easing becomes possible to review, “we will consider whether it is a good idea to continue it, including other measures.” comment. Deputy Governor Shinichi Uchida said in a February speech that, “When we revise large-scale easing, it would be natural to stop purchasing J-REITs,” including real estate investment trusts (J-REITs).

The purchases of ETFs and J-REITs began as part of the “comprehensive monetary easing policy” introduced in 2010 by former Governor Masaaki Shirakawa. The Bank of Japan is the only major central bank that purchases ETFs. Under the extraordinary easing by former Governor Haruhiko Kuroda, the amount has been increased repeatedly, and the current purchasing policy is to cap annual purchases at approximately 12 trillion yen for ETFs and approximately 180 billion yen for J-REITs, and “purchases will be made as necessary.” ”.

According to market estimates, the market capitalization of ETFs owned by the Bank of Japan was approximately 70 trillion yen as of last month, roughly equivalent to the national tax revenue.

The Bank of Japan is likely to hold a more in-depth discussion on the pros and cons of lifting negative interest rates at its monetary policy meeting to be held on the 18th and 19th. Based on the tally of responses to the first round of spring labor to be released by the Rengo on the 15th, it will be determined whether this month’s cancellation is appropriate.

Bank of Japan debates whether to lift negative interest rates, makes decision based on Shunto data – related parties

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2024-03-13 09:15:06
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In the financial and securities markets on the 11th, long-term interest rates soared on speculation that Bank of Japan Governor Kazuo Ueda had signaled tightening of monetary policy, including ending the negative interest rate policy. Due to high interest rates, the yen rose sharply in the foreign exchange market, and bank stocks rose sharply in the stock market.

Long-term interest rates rose 5.5 basis points (bp, 1bp = 0.01%) to 0.7%, the highest level since January 2014. The Yomiuri Shimbun reported in its morning edition on the 9th that Governor Ueda acknowledged that there is a possibility that the data needed to determine a virtuous cycle in wages and prices will be ready by the end of this year. As expectations for early financial normalization spread across the market, the yen appreciated, bank stocks were bought, and real estate stocks fell.

The Bank of Japan announced in the afternoon that it would carry out a five-year common collateral funding operation on the 14th. The market sees this as an attempt to curb the rise in interest rates, and the rate of increase in long-term interest rates was temporarily reduced slightly.

Yield on newly issued 10-year bonds rises to 0.7%, highest level in 9 years and 8 months – dollar/yen temporarily declines by 1.1% to 146.23 yen for one week after Bank of Japan’s announcement of common collateral operation The Tokyo Stock Price Index (TOPIX), which sees the dollar weakening and the yen strengthening for the first time, fell 2.29 points (0.1%) to 2,356.73 – Bank stocks led the increase, real estate stocks led the decline – 1:30 p.m. Nikkei Stock Average was 140 ¥88 (0.4%) lower to ¥32,465.96

Even with the government’s verbal intervention, the yen’s depreciation is hard to stop in the foreign exchange market, and consumer prices, including the rise in crude oil prices and import prices, continue to rise at the 3% level. The Bank of Japan made the operation of long-term and short-term interest rates (yield curve control, YCC) more flexible in July, and speculation about the timing of financial normalization, which had been floating in the market, appears to have been brought forward in response to the governor’s remarks. is.

Bank of Japan Governor Ueda

Photographer: Akio Kon/Bloomberg

Mari Iwashita, chief market economist at Daiwa Securities, points out that foreign exchange rates are part of the Bank of Japan’s policy response function. Regarding the YCC flexibility in July, it said in a report dated November 11, “It appears that the decision was made earlier in consideration of the weaker yen.” The main scenario (with a 60% probability) for the end of negative interest rates, which had previously been set for the second half of 2025, has been moved up to April next year.

Naoya Hasegawa, senior bond strategist at Okasan Securities, also pointed out that the possibility that the abolition of YCC and the termination of negative interest rates will be decided at a meeting within this year cannot be ignored. Although we believe that policy revisions will be made in January 2024 at the earliest, we believe that the content of the report gave a sense that not only the abolition of the YCC, but also the end of negative interest rates is not far away.

The Bank of Japan will hold a monetary policy meeting on the 21st and 22nd of next week. In the near term, the content of Governor Ueda’s press conference to be held on the afternoon of the 22nd after the policy decision will attract the attention of market participants, and after that, the “Outlook Report on the Economic and Price Situation” will be announced at the October meeting. The next focus will likely be on whether there will be any changes in the outlook for prices.

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2023-09-11 04:45:42
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