BOJ returns to net profit on weak yen, surge in ETF holdings

[TOKYO] The Bank of Japan (BOJ) returned to a net profit in the first half of fiscal 2017 as a weak yen boosted the value of the central bank's foreign assets, and its capital adequacy ratio improved.

The BOJ's holdings of exchange-traded funds (ETF) surged in April-September and unrealised earnings from these holdings rose to a record, which could fuel calls for the central bank to slow ETF purchases to avoid manipulating underlying share prices.

Profits from the central bank's government bond holdings fell for the second year in a row as its aggressive stimulus pushed down yields.

The BOJ had a net profit of 550.2 billion yen (S$6.66 billion) in the six months that ended in September, its earnings showed on Tuesday.

That compared with a net loss of 200.2 billion yen in the same period a year earlier, which was the first loss in four years for the April-September period.

The bank's capital adequacy ratio was 8.12 per cent at the end of September, up from 8.07 per cent at the end of March.

The BOJ considers a capital adequacy ratio of eight per cent the minimum needed to maintain financial health.

In April-September, the BOJ's ETF holdings soared 62.2 per cent to 15.8 trillion yen, following a 56.6 per cent jump from first half of the prior fiscal year.

Unrealised profits on ETF holdings, or the difference between the current price and the purchase price, stood at a record high of 4.3 trillion yen at the end of September, according to a BOJ official.

The central bank began purchasing ETFs in 2013 to lower risk premiums as part of its quantitative easing programme. Some economists say these purchases are no longer necessary because Japanese stocks have rallied to a near 26-year high this year.

The BOJ is buying Japanese government bonds (JGB) to keep 10-year yields around zero as part of its easing programme.

In April-September, the BOJ's JGB holdings rose 9.6 per cent from a year ago to 435.9 trillion yen, or around 40 per cent of all JGBs.

Earnings from JGB holdings were 597.2 billion yen in April-September, compared with 628.4 billion yen in the same period a year ago.

REUTERS