The Bank of Japan’s ETF Purchase during COVID-19

35 Pages Posted: 8 May 2020 Last revised: 1 Jun 2021

See all articles by Takahiro Hattori

Takahiro Hattori

University of Tokyo - Graduate School of Public Policy

Jiro Yoshida

Pennsylvania State University - Smeal College of Business; The University of Tokyo - Graduate School of Economics

Date Written: April 13, 2020

Abstract

The Bank of Japan (BOJ) started to purchase equity exchange-traded funds (ETFs) in 2010 and doubled its annual target amount in 2020 during COVID-19 to decrease equity risk premia as part of its unconventional monetary policy. This study demonstrates that the BOJ times the market by buying ETFs after observing negative overnight and morning stock returns and stopping purchase after seeing positive overnight and morning returns. Lunchtime returns are higher on the day of the actual ETF purchase, especially during the COVID-19 pandemic, suggesting that the program takes effect through the scarcity channel. Although the announcement of the doubled budget did not have an immediate effect on stock prices, we observe consistent increases in stock prices and decreases in volatility after the announcement. The BOJ’s commitment to counter-cyclical ETF purchase may have contributed to a lower equity risk premium by providing investors with downside protection.

Keywords: large-scale asset purchases (LSAP), quantitative easing (QE), central banking, exchange-traded funds (ETF), unconventional monetary policy

JEL Classification: E52, E58, G11

Suggested Citation

Hattori, Takahiro and Yoshida, Jiro, The Bank of Japan’s ETF Purchase during COVID-19 (April 13, 2020). Available at SSRN: https://ssrn.com/abstract=3575835 or http://dx.doi.org/10.2139/ssrn.3575835

Takahiro Hattori

University of Tokyo - Graduate School of Public Policy ( email )

Tokyo
Japan

Jiro Yoshida (Contact Author)

Pennsylvania State University - Smeal College of Business ( email )

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Smeal College of Business
University Park, PA 16802
United States
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814-865-6284 (Fax)

HOME PAGE: http://www.personal.psu.edu/juy18

The University of Tokyo - Graduate School of Economics ( email )

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