Liquid Alternatives: Bank of Japan Beefs Up ETF Purchase Strategy; You Could Too
The Japanese central bank took a slew of monetary steps in response to the global coronavirus pandemic.
At an emergency meeting, Monday the Bank of Japan kept interest rates unchanged at a negative (-) 10 bps, but doubled its annual ETF buying plan to ¥12 trillion from ¥6 trillion. It also introduced a new lending program to smooth funding for firms.
However, the BOJ did assure that it will continue to support the economy with liquidity. It also said it will keep buying Japanese government bonds.
The move to buy more ETFs had a somewhat stabilizing effect on the Nikkei 225 index. However, any rallies were promptly sold into.
BOJ a big ETF bull in Japan
The BOJ’s relentless program of ETF purchases, now over a decade old, could take its ETF portfolio to a value exceeding ¥40 trillion ($372 billion) by the end of 2020.
According to the FT, the BOJ may soon surpass the Japanese state pension fund, the GPIF, as the largest holder of domestic stocks by the end of the calendar year.
However, the ETF support comes at a cost. The Bank of Japan has not escaped the recent crash in stock markets due to the virus.
Bank of Japan Governor Haruhiko Kuroda said today that unrealized losses in the central bank’s holdings of exchange-traded funds total an estimated 2 trillion to 3 trillion yen ($19 billion-28 billion) at present.
How to take advantage of the BOJ’s plan
Investors with some cash and a long term view can enter at these beaten-down levels and pick up a Japanese stock ETF.
For instance, the WisdomTree Japan Multifactor Fund (BATS: JNMF) seeks income and capital appreciation by investing in Japanese equity securities with the highest potential for returns based on proprietary measures of fundamental factors, such as value and quality, and technical factors, such as momentum and correlation. (ETF Trends)
- Gain targeted multifactor exposure to Japanese equities, while dynamically hedging currency risk
- Use to strategically seek alpha and help reduce risk as a core holding over longer time horizons
- Use to help lower cost of active managers through systematic factor exposures
The ETF comes with an expense ratio of 0.43.
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