The Bank of Japan announced it will begin lending out its fast-growing holdings of domestic-equity-focused exchange-traded funds, acquired as part of the central bank's quantitative easing efforts, to address concerns about liquidity in Japan's ETF market.
The move, pending authorization from the minister of finance and the commissioner of Japan's Financial Services Agency, would be in line with a decision made at a BOJ monetary policy meeting in April, the central bank said in a statement posted on its website following its Thursday board meeting.
The BOJ's latest announcement of its accounts showed the central bank holding ETFs valued at ¥28.1 trillion ($256 billion), up from ¥23.5 trillion at the start of 2019.
A report Friday by London-based ETFGI, an independent research and consulting firm, said the Japanese ETF/ETP market stood at a record $391.89 billion at the end of November.
The BOJ's ETF holdings, then, account for 65% of Japan's market. And a separate BOJ announcement Thursday projected another ¥6 trillion in central bank ETF purchases over the coming 12 months.
The central bank's ETF announcement said the trustee managing its ETF holdings would lend out its holdings for a duration of "within one year," with either party able to "request to terminate" at any time.
The lending rate can be determined by competitive auction or set by the BOJ in advance.
Money managers and asset-servicing executives said ETFs can be borrowed to short entire markets, among other uses.
