Bank of Japan may introduce lending facility for ETF buying programme

Bank of Japan

The Bank of Japan (BoJ) may launch a lending facility for its ETF buying programme, in a move that will see the bank temporarily lend to market makers and authorised participants.

At the latest monetary policy meeting, BoJ Governor Haruhiko Kuroda said authorised participants had highlighted issues around market making due a lack of inventory.

The BoJ’s ETF holdings total around $250bn as at the end of March, representing 77% of Japan’s ETF market. At its current pace, the bank’s ETF holdings are set to hit $360bn by November 2020.

Kuroda commented: “There are opinions that bid-ask spreads have widened a bit and it is difficult for market liquidity and market function to be fully realised. By creating the ETF lending facility, we expect the ETF market to function better.”

The decision comes in the same week as the Japan Exchange Group and the Shanghai Stock Exchange established a “Japan-China ETF Connectivity”.

Similar to Hong Kong, the move will link the ETF markets for both exchanges in an attempt to improve the opportunities for cross-border investment between the two markets.

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