Kuroda Says BOJ ETF Purchases Are to Reduce Risk Premium

Japanese regulator ignores concerns about asset bubble.

Japan’s central bank has no plans «constantly cut» purchases of exchange-traded funds (ETFs), its head said on Tuesday, signaling that radical changes in the scheme of buying assets should not be expected in the upcoming review of the regulator’s policy.

Governor of the Bank of Japan Haruhiko Kuroda also said the recent rally in stock prices reflects market optimism about the outlook for the global economy, fending off accusations that super-weak central bank policies are fueling an asset price bubble.

«Optimism about the outlook for the global economy and stable vaccine uptake may be behind the recent rally in stock prices», – Kuroda declared to parliament. Japanese stocks rise to 30-year high on Tuesday.

«But global prospects remain highly uncertain», – he said, adding that the risks to the Japanese economy are still biased towards its decline..

The Bank of Japan in March unveiled a plan to revise its policy instruments, including an ETF buying program, to make the economy more resilient as the COVID-19 pandemic forces the regulator to continue stimulating for an extended period..

Kuroda said the review will look at the side effects of long-term mitigation, as the impact of the pandemic raises the likelihood that Japan will miss its 2% inflation target even in 2023..

The head of the regulator stressed that it is too early to discuss a way out of the super-liberal central bank policy, which includes huge ETF purchases by the Bank of Japan, as the COVID-19 pandemic continues to destroy the economy..

Bank of Japan Governor Haruhiko Kuroda is not going to cut ETF purchases

«Our ETF purchase had a positive impact on the economy and prices. We have no plans to end or permanently curtail our purchases», – said Kuroda.

«We’ll look at remedies (side effects) in our March roundup», – he added.

As part of its yield curve control policy, the Bank of Japan sets short-term interest rates at around -0.1% and 10-year yields at around zero. He also buys huge volumes of government bonds and risky assets like ETFs as part of an effort to hit his 2% inflation target..

The BOJ’s plan to revise its policy instruments in March reflects growing policymakers’ concerns about the rising cost of extended easing.

Some analysts have also criticized the BOJ for continuing to buy huge ETFs as Tokyo stock prices are setting new highs..

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