Bank of Japan buys record amount of stock ETFs

But purchases fail to prevent heavy market drop

Want to see how this story relates to your portfolio?

Just add items to create a portfolio now:

LOS ANGELES (MarketWatch) — The Bank of Japan stepped back into the stock market Monday, making its largest single-day purchase of exchange-traded funds to date, though the move failed to prevent a sharp fall for the Tokyo equity market.

The Japanese central bank said it spent 39.7 billion yen (about $500 million) buying up stock ETFs as part of its ongoing asset-purchase program, breaking a previous record of ¥28.5 billion, set on April 16.

Dow ends lower for fourth straight session

Stocks reversed losses and inched higher, after elections in France and Greece fueled concerns about the region's ability to deal with its sovereign-debt problems.

In addition to the ETF buys, the Bank of Japan also acquired ¥2.3 billion in real-estate investment trusts Monday.

Since the 2008 collapse of Lehman Brothers and ensuing global crisis, central banks around the world have embarked on a spree of asset-buying meant to avoid deflation and, to a certain extent, support the markets.

But Japan’s monetary authority is almost unique among its peers in the major developed economies in its high-profile purchases of ETFs, which it began in December 2010 as part of aggressive easing measures.

Since then, the Bank of Japan has bought almost ¥1 trillion worth of ETFs — along with another ¥78.9 billion in REITs — and has an additional ¥642 billion to spend on the stock funds after raising the program’s size at it last policy meeting in April.

The central bank emphasizes that the program has only broad goals such as supporting interest rates and reducing risk premiums, rather than supporting financial markets.

Jefferies Japan’s head of Japanese strategy Naomi Fink says that while the ETF purchases are really part of the broad push to reflate asset prices in the deflation-plagued country, they do “provide a bit of a backstop, when they think they can curb the downside” for the market.

“Still, it’s a very small amount,” Fink said of the ETF purchases. “It’s more designed to bolster sentiment ... [and] it works best when sentiment is fragile.”

Sentiment was certainly fragile Monday, as investors returned from a four-day holiday weekend to find the yen considerably stronger — a negative factor for Japan’s export-focused corporations — U.S. employment growth weaker than expected, and European election results raising more uncertainty for the euro zone.

/quotes/zigman/5986735 100000018 9,181.65, +62.51, +0.69%

The blue-chip Nikkei Stock Average /quotes/zigman/5986735 JP:100000018 +0.69%  tumbled 2.8% within minutes of the open, although the benchmark held off further losses after the initial hit, ending down 2.8%. See report on Monday’s Asia stock action.

In terms of its ETF purchases, the central bank tries to buy the largest, most liquid funds, with the most diverse constituents, Fink said.

And while investors don’t find out about the Bank of Japan’s market operations until after the close of trading, “there’s a market assumption that when the Topix falls more than 1%, that triggers ETF purchases,” according to Fink.

Still, Fink advised against trying to front-run the central bank by jumping into the market whenever the Topix — Japan’s key broad-market index — drops 1%.

“I wouldn’t exactly call that my favorite strategy,” she said, adding that since the ETF-buying program isn’t meant to be a “price-keeping operation,” it offers little in the way of trading opportunities.

/quotes/zigman/5986735

May 8, 2012 3:00p

Michael Kitchen is Asia editor for MarketWatch and is based in Los Angeles.

Financial Glossary

Comments on this story

3:02a

3:01a

3:00a

2:45a

2:13a

2:09a

2:01a

1:52a

/conga/kiosk/marketfox.html 206480

/conga/kiosk/cody.html 206536

/conga/kiosk/trading-deck-10.html 206502

/conga/kiosk/middle-east.html 206272

Copyright © 2012 MarketWatch, Inc. All rights reserved.

Intraday Data provided by SIX Telekurs and subject to terms of use . Historical and current end-of-day data provided by SIX Telekurs. Intraday data delayed per exchange requirements. Dow Jones Indexes (SM) from Dow Jones & Company, Inc. All quotes are in local exchange time. Real time last sale data provided by NASDAQ. More information on NASDAQ traded symbols and their current financial status. Intraday data delayed 15 minutes for Nasdaq, and 20 minutes for other exchanges. Dow Jones IndexesSM from Dow Jones & Company, Inc. SEHK intraday data is provided by SIX Telekurs and is at least 60-minutes delayed. All quotes are in local exchange time.

MarketWatch Top Stories

The action you requested requires a MarketWatch Community display name.

Log In

Email address

Please log in or register.

Log In

Email address

By registering, you are agreeing to MarketWatch's Terms of Service and to receiving periodic news and special offers via email about MarketWatch enhancements, products and services.

Please log in to access your MarketWatch

Premium Newsletter subscription(s).

Contact customer service at