Bank of Japan minutes show ex-chief factored in ETF purchase risks in 2010

26-Jan-2021 Intellasia | Mainichi | 6:52 AM Print This Post

Former Bank of Japan Governor Masaaki Shirakawa stressed the need for unconventional steps to help underpin the economy in October 2010 but cautioned that the decision to purchase exchange-traded funds would entail risks, meeting minutes showed Monday.

The BOJ decided on its first-ever purchase of ETFs, which are riskier in terms of price volatility than assets the central bank had previously bought, at a policy meeting on October 5 of the year under what it called “comprehensive monetary easing.”

Shirakawa told other BOJ policymakers that to make the central bank’s monetary easing more effective “entering such a world” of risker asset purchases was necessary, but he added that “of course, we will not know (what will happen) unless we do it” and the possibility of losses would increase, according to the minutes.

“It means that we could not make up for possible losses with (money in) our pocket but would pass the burden on to the public,” Shirakawa was quoted as saying when warning of the risk if stock prices fell and other assets bought by the BOJ lost value.

The meeting was held at a time of growing concern over the economy as the US dollar had fallen to the lower 82 yen range in September 2010, prompting the Japanese government to go ahead with its first yen-selling intervention in the currency market in more than six years.

The BOJ continues to buy ETFs under Shirakawa’s successor Haruhiko Kuroda, the current governor who took office in 2013. To support the economy hit hard by the coronavirus pandemic, the central bank has expanded its annual purchases of ETFs to up to 12 trillion yen ($116 billion).

As of the end of November, the BOJ owned ETFs with a market value of about 45 trillion yen, accounting for roughly 7 percent of the market capitalisation of companies listed on the First Section of the Tokyo Stock Exchange, according to an estimate by Shingo Ide, chief equity strategist at the NLI Research Institute.

However, the BOJ has yet to achieve its 2 percent inflation target following a decade of ETF purchases and has failed to return to policy normalisation, although it has latent profits on its holdings of the funds and has avoided logging losses thanks to rising stock prices.

At the 2010 meeting, the BOJ policymakers decided to guide its key short-term interest rate to between zero and 0.1 percent from the 0.1 percent target, returning to a zero interest rate policy for the first time in over four years, and set up a fund to buy ETFs and other assets worth around 5 trillion yen.

The central bank is maintaining its ultraeasy monetary policy, keeping short-term rates at minus 0.1 percent while guiding long-term rates to around zero percent.

The BOJ releases full minutes of monetary policy meetings from 10 years ago, including the names of speakers, biannually in principle. It publishes summary minutes one month after each policy meeting, without specifying speakers.

The minutes made available Monday covered monetary policy meetings held between July and December 2010.


Category: Japan

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