BOJ's Kuroda says no plan to 'permanently reduce' ETF buying, shrugs off fears of asset bubble

TOKYO (Reuters) – Japan’s central bank has no plans to “permanently reduce” its purchases of exchange-traded funds (ETF), its governor said on Tuesday, signalling that its upcoming policy review won’t lead to a radical change in its asset-buying scheme.

Bank of Japan 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 rollouts may be behind the recent surge in stock prices,” Kuroda told parliament. Japan’s stocks rose to a 30 year-high on Tuesday.

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

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.

Kuroda said the review would address the side-effects of prolonged easing, as the hit from the pandemic heightens the chance Japan will miss the BOJ’s 2% inflation target even in 2023.

But he stressed that it was premature to debate an exit from the central bank’s super-loose policy including the BOJ’s huge ETF purchases, as the COVID-19 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,” Kuroda said.

“We’ll look into ways to address (the side-effects) at our March review,” he said.

Under the yield curve control policy framework, the BOJ guides short-term interest rates to around -0.1% and 10-year yields to around zero. It also buys huge amounts of government bonds and risky assets such as ETF as part of efforts to achieve its 2% 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.

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