Bank of Japan officials are growing more receptive to stepping up monetary easing measures by buying more exchange-traded funds (ETF) invested in shares, as a stock market tumble and weak global growth threaten the country’s fragile economic recovery.
BOJ policymakers are wary of intervening too heavily in the stock market, but its primary monetary easing tools–cutting interest rates and buying government bonds–are showing diminishing returns and have become less attractive since it adopted negative interest rates in January, sources familiar with the BOJ’s thinking said.
The BOJ is currently buying about 3.3 trillion yen of ETFs a year, which pales in comparison to the 80 trillion yen of government bonds it buys, under a stimulus policy it began in 2013 in a bid to end decades of stagnation and deflation.
After an initial uptick in growth and prices, Japan is back with flat growth and inflation, and the negative interest rate policy has proved deeply unpopular among banks and the public, limiting the BOJ’s room for further cuts.
“ETFs and government bonds are two markets in Japan where there’s room to increase the BOJ’s purchases in huge amounts,” one of the sources said.
BOJ policymakers are likely to debate the possibility of expanding stimulus at a rate review this month as the strong yen and weak external demand further cloud prospects for achieving their 2 percent inflation target. Read more