BOJ Begins to Sell ETF

The Bank of Japan (BOJ) decided to keep its short-term rate at 0.5 percent in its Monetary Policy Meeting on September 19th. While it had been expected that the bank would not change the policy rate in the meeting, the meeting unanimously agreed on beginning to sell exchange-traded funds (ETF). Although the policy reflected the bank’s determination for normalizing its monetary policy, the Governor of JOB, Kazuo Ueda, predicted that it would take a hundred years to release all the ETF it possesses.

While the BOJ started buying ETF, a financial product which is equivalent to investment trust, in 2010, the bank abruptly increased its quantity of purchase in 2013, under the leadership of then governor, Haruhiko Kuroda, who exchanged an accord with Shinzo Abe administration to cooperate to get rid of deflation and to achieve stable economic growth. The amount of ETF bought by the BOJ has reached 37 trillion yen.

 

Purchase of ETF by a central bank has been recognized as a prohibited monetary policy, because it may distort trade in the market. Setting a target of 2 percent price inflation in his ultra-easy monetary policy, Kuroda promoted purchase of ETF to provide a large amount of money into the market. Kuroda’s policy was supposed to help implementing political agenda of Abe, who upheld a strategy for expansion of Japanese economy called Abenomics.

 

The BOJ decided to release the ETF to the market by 330 billion yen every year. Ueda told that it would take 100 years to sell out all the ETF. In other words, it takes a hundred years to get rid of an impact of Abenomics. “We can reduce the impact of our sales on the market by continuing small amount of sales,” said Ueda in his press conference after the meeting. Ueda revealed that he had been considering the sales of ETF, when the bank changed its policy to end ultra-easy monetary policy with yield curb control in March 2024.

 

Although Ueda took its impact on the market into consideration, the announcement of starting selling ETF caused a steep decline in stock market. Average of Nikkei 225 marked 1,300 of decline right after BOJ’s announcement on the meeting on September 19th. The market predicted negative impact of BOJ’s exit strategy from decade-long low interest policy.

 

Selling ETF symbolized BOJ’s exit strategy from ultra-easy monetary policy. Insistence on 2 percent of inflation target brought high commodity price to Japanese economy, in which real wage is still lagging behind and concerns of consumers on unstable price of daily necessities grow. The main talking point for lawmakers in the Diet is how they can support people’s ordinary life, including issues such as cutting consumption tax off or reducing gasoline tax.

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