The Impact of Bank of Japan’s Exchange-Traded Fund Purchases

62 Pages Posted: 8 May 2020 Last revised: 9 Dec 2022

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: July 26, 2022

Abstract

The Bank of Japan (BOJ) enhanced its large-scale asset purchases in October 2010 by purchasing equity exchange-traded funds (ETFs). This study is the first to demonstrate that the BOJ provides downside protection for stock prices through the countercyclical purchase of ETFs. The BOJ responds to a large negative stock return during the overnight and morning periods, and submits purchase orders during lunchtime. Using the BOJ’s March 2020 announcement of doubling the annual purchase amount during the COVID-19 pandemic, this study also finds that the announcement effect is small and temporary. In contrast, the flow effect of the actual purchases is significant and increases. The BOJ’s counter-cyclical ETF purchase prevents equity risk premia from rising during an economic downturn.

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 Impact of Bank of Japan’s Exchange-Traded Fund Purchases (July 26, 2022). Journal of Financial Stability, Forthcoming, 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 )

368 Business Building
Smeal College of Business
University Park, PA 16802
United States
814-865-0392 (Phone)
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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Japan
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813-5841-5521 (Fax)

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