Japan moving toward $200 billion-plus direct buying of ETFs to stimulate economy.  

In the United States, exchange-traded funds served as a key measuring stick for bond traders last fall when trying to stimulate liquidity as credit markets froze. 

Now, the Japanese government is apparently about to turn to ETFs to do much the same with its stock market.

Reports from several wire services Thursday are pointing to an article in the Yomiuri Shimbun newspaper’s morning edition that regulators are debating asking the Bank of Japan to buy stock ETFs to prop up the country’s ailing markets. 

Leaders are also talking privately about enticing the bank to move forward with the plan by offering government financial support in the case that any losses result from such a move by the BOJ, according to a Reuters report. 

The article also noted that the Japanese paper cited an unnamed ruling party official saying the plan could involve as much as US$205 billion in ETF purchases.

Also on Thursday, Bloomberg News reported that Japanese Finance Minister Kaoru Yosano ordered a study of new ways to boost sagging stock markets. That apparently is aimed at moving the country closer to enlisting public funds to directly buy equities from the market. 

Yasushi Okada, a Cabinet Office economist, told Bloomberg earlier this month that “even though it has adopted some unconventional tools, the central bank is still only delivering money to financial institutions and letting them decide where to lend.”

That’s just not enough, he added. “If the central bank buys ETFs, it would boost the overall stock market,” Okada told Bloomberg. “If the bank announces its determination to try tools it has never used, that would make an impact.” 

In the 1960s, the Japanese government also set up a stock-buying agency to help stimulate growth. 

The Reuters report also pointed out that even if the BOJ receives such a formal request and moves forward with it, the plan would take time to implement—including gaining the approval of parliament.

But at the end of March, Japanese banks end their fiscal year, which could give a move to enlist ETFs in a nationwide stimulus program a greater sense of urgency, concluded analysts that the news service discussed the matter with for the report. 

The Yomiuri Shimbun has a Web site that has some articles published in English. It can be found here. The Reuters story can be found here.

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