A $430 billion habit got Japan’s central bank hooked on ETFs

A $430 billion habit got Japan’s central bank hooked on ETFs

Bloomberg

In most of the world, exchange-traded funds (ETFs) are simply tools that allow investors to track a certain set of stocks. In Japan, they’ve been saddled with everything from propping up the market and boosting inflation, to accelerating economic growth, improving corporate governance and even encouraging gender equality.

Such wide-ranging goals have led the Japanese central bank to amass a whopping 80% of the country’s ETFs—equivalent to about 7% of its $6 trillion stock market—in less than a decade. That’s far further than any other central bank in the world has gone in trying to prime its economy via equities purchases. The Bank of Japan has also outpaced peers with its $3.7 trillion in net bond purchases.

But nine years and few hundred billions of dollars-worth of ETF purchases later, the most striking consequence of the world’s boldest monetary experiment is this: The BOJ is stuck with a vast portfolio it might not be able to get rid of.

One year ago, the central bank effectively halted its ETF purchases—the first clear step towards winding down this part of its extraordinary intervention that critics said had distorted the market and made it the largest owner of the nation’s stocks.