BOJ governor says no plan to 'permanently reduce' ETF buying

Tokyo

JAPAN'S central bank has no plans to "permanently reduce" its purchases of exchange-traded funds (ETFs), its governor said on Tuesday, signalling that its upcoming policy review would not lead to a radical change in its asset-buying scheme.

Bank of Japan (BOJ) governor Haruhiko Kuroda also said the recent stock price rally reflected market optimism over the global economic outlook, brushing aside views its ultra-loose policy was fuelling an asset price bubble.

"Optimism over the global economic outlook and steady vaccine roll-outs may be behind the recent surge in stock prices," he told Parliament.

"But the global outlook remains highly uncertain," he said, adding that risks to Japan's economy remained skewed to the downside.

Japan's stocks rose to a 30-year high on Tuesday in line with a global market rally reflecting hopes of big stimulus and steady vaccine rollouts.

The BOJ has unveiled a plan to review its policy tools, including its ETF-buying programme, in March to make it more sustainable, as the Covid-19 pandemic forces it to maintain its stimulus for a prolonged period.

Mr Kuroda said the review would address the side-effects of prolonged easing, as the hit to growth from the pandemic may keep his 2 per cent inflation target elusive for years.

"It may be difficult for inflation to reach 2 per cent in 2021, 2022 and even 2023," he said. "It's not as if our efforts have had no effect. But we need to do more, given the fact inflation hasn't reached 2 per cent despite eight years (of easing)," he said.

Mr Kuroda's second five-year term as BOJ governor ends in April 2023.

Core consumer prices fell 1 per cent in December from a year earlier, marking the biggest drop in a decade, a sign of intensifying deflationary pressure.

Mr Kuroda said it was premature to debate an exit from the central bank's super-loose policy including the BOJ's huge ETF purchases, as the pandemic continues to ravage the economy.

"Our ETF buying has had a positive impact on the economy and prices. We don't have any plan to end or permanently reduce our purchases," he said. "We'll look into ways to address (the side-effects) at our March review," he said.

Under a policy dubbed yield curve control, the BOJ guides short-term interest rates to around -0.1 per cent and 10-year yields to around zero. It also buys huge amounts of assets, such as ETFs, as part of efforts to achieve its 2 per cent inflation target.

The BOJ's plan to review its policy tools in March reflects a growing concern among policymakers over the rising cost of extended easing.

Some analysts also criticise the BOJ for continuing its huge ETF buying at a time Tokyo stock prices have set new highs. REUTERS