Bank of Japan reaps record latent profits on ETF holdings

THE Bank of Japan reaped record latent profits on its holdings of exchange-traded funds (ETF) in the year that ended in March on booming stock prices, its earnings data showed on Wednesday (May 29).

While governor Kazuo Ueda has ruled out the chance of selling the BOJ’s ETF holdings any time soon, the hefty unrealised profits may draw increased political attention as a potential source of revenue to fund government initiatives.

Latent profits on the BOJ’s ETF holdings stood at 37.31 trillion yen (S$320.2 billion) as of March, up from 23.58 trillion yen as of September last year, the earnings showed.

Reflecting rising long-term interest rates, the BOJ suffered latent losses worth 9.43 trillion yen on its government bond holdings as of March, compared with losses of 10.5 trillion yen in September last year, the fiscal 2023 earnings showed.

Yields move inversely to bond prices, which means rising long-term interest rates would lower bond prices.

The BOJ set aside 6.98 trillion yen worth of reserves to guard against future losses on its bond transactions, up 923 billion yen from the previous year, the earnings showed.

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In March, the BOJ ended eight years of negative interest rates and other remnants of its radical stimulus, including purchases of risky assets such as ETFs and a policy that capped long-term yields around zero.

The exit will likely weigh on the BOJ’s profits as the central bank now pays 0.1 per cent interest on financial institutions’ reserves, and will see the value of its bond holdings diminish on rising long-term yields. REUTERS