Japan opposition party to propose using BOJ’s ETF dividends for child care

By Thomson Reuters Apr 17, 2024 | 12:20 AM

TOKYO (Reuters) – Japan’s biggest opposition party is set to propose the government taps dividend income from exchange-traded funds (ETF) owned by the Bank of Japan (BOJ) to help fund a planned $23 billion child care support package.

The proposal, to be submitted to the parliament by the Constitutional Democratic Party of Japan (CDP) on Thursday, suggests that legacy assets as a result of the central bank’s unconventional monetary measures could be the subject of political wrangling.

The BOJ formally decided to discontinue ETF purchases last month, a controversial measure it started in 2010 as part of a stimulus programme deployed under former governor Masaaki Shirakawa.

The BOJ’s ETF holdings have ballooned to more than 60 trillion yen ($389 billion) in market value, making it the biggest holder of Japanese shares and drawing heat for exposing its balance sheet to excessive market risk.

Unlike government bonds, ETFs do not have maturity and won’t fall off the BOJ’s balance sheet unless the central bank sells them in markets to a third party.

CDP’s proposal calls on the government to buy the BOJ’s ETF holdings in exchange for grant bonds and to use ETF dividends to finance the 1 trillion yen portion of the 3.6 trillion yen package designed to stem Japan’s declining birth rate, according to the party’s document, which was reviewed by Reuters.

CDP estimates that the BOJ’s ETF holdings would generate about 1.39 trillion yen annually if the benchmark Nikkei stock average stays around 40,000 yen.

Japanese Prime Minister Fumio Kishida on Tuesday opposed the CDP’s idea, saying that ETF dividend income has already been used to fund the general account budget.

Fresh government bonds need to be issued to fill in general account budget shortages if ETF dividends are to be used for the child care support, he said at the parliament.

($1 = 154.6800 yen)

(Reporting by Yoshifumi Takemoto, Takahiko Wada and Takaya Yamaguchi; Writing by Makiko Yamazaki; Editing by Christian Schmollinger)