Japan bourse head flays Kuroda ETF buys

Japan Exchange Group CEO Kiyota said Bank of Japan’s purchases of ETF are distorting market

Haruhiko Kuroda’s policies have a surprise new critic: the head of Japan’s stock exchange.

The Bank of Japan’s purchases of exchange-traded funds are distorting the market, Japan Exchange Group Inc. chief executive officer Akira Kiyota said. BOJ Governor Kuroda’s program of spending 6 trillion yen (Dh198 billion; $54 billion) a year on the funds artificially depresses volatility, which keeps people from trading, said Kiyota, who was previously The central bank has been buying ETFs since 2010, but has been increasing its purchases as part of a package of unprecedented stimulus under Kuroda aimed at revitalising the economy, virtually doubling its annual buying target to 6 trillion yen in July 2016. The BOJ owned about 71 per cent of all shares in Japan-listed ETFs at the end of June, according to a Bloomberg analysis of data from the central bank and Japan’s Investment Trusts Association. That’s equivalent to about 2.5 per cent of Japanese stock market capitalisation. more supportive of the policy.

“It’s not good in the long run,” Kiyota said in an interview in Tokyo last week. “If you keep buying 6 trillion yen a year, that means constant distortion.”

While Kiyota’s views aren’t unusual, what’s strange is that he expressed them in public. Officials in Japan rarely speak negatively about other arms of the establishment. It’s the latest sign that the tide is turning against the ETF buying, after Bloomberg News reported that some people at the BOJ were said to be concerned about the programme’s sustainability. The chairman of the Japanese Bankers Association has also said there are issues with the size of the central bank’s ETF holdings.

Kuroda and his board kept monetary policy, including the ETF programme, unchanged after winding up a two-day meeting yesterday. All 43 economists who responded to a Bloomberg survey had forecast that the BOJ would stand pat.

Back in September, Kiyota had no problem with the purchases. Given the Japanese equity market’s market capitalisation of around 500 trillion yen, the BOJ’s holdings weren’t enough to distort the overall market, he said at the time. While continued purchases were likely to have an effect eventually, the exchange head said he assumed that the BOJ was fully aware of that possibility and dealing with it.