Kuroda says BOJ ready to buy ETFs 'boldly,' drops no hints on when

By Leika Kihara

TOKYO (Reuters) -Bank of Japan Governor Haruhiko Kuroda said on Thursday the central bank was ready to buy exchange-traded funds (ETF) "boldly" when necessary, but did not offer any hints on whether it would step in to stem the current market rout.

The central bank has held off from buying ETFs this month even as Japanese share prices sank on worries over rising global input costs and a tech sell-off on Wall Street.

Kuroda said the BOJ's purchases were not intended to prop up stock prices at a certain level, but were operational decisions based on market moves at the time.

"We don't have any automatic, set rule in buying ETFs, such as doing so when stock prices fall by a certain amount in several days," Kuroda told parliament.

"There's absolutely no change to our stance of buying ETFs boldly when necessary," he added.

As part of efforts to make its massive stimulus sustainable, the BOJ in March ditched a pledge to buy ETFs at a set annual pace and now promises to step in only when necessary.

Since then, it has bought ETFs on three days in March, once in April and not at all so far in May. That is well below its average appearance of six days per month last year.

Data disclosed by the BOJ showed the central bank did not buy ETFs on Thursday, even as the Nikkei fell 2.5% to hit a four-month low. The broader Topix shed 1.5% to touch a three-month low.

Kuroda said the BOJ's basic stance was to buy ETFs in huge amounts when market fluctuations are large, based on its findings that doing so was most effective in maximising the effect.

On Japan's economy, Kuroda warned of risks to the outlook as a spike in new COVID-19 variants and a third state of emergency measures weigh on growth.

"Economic activity will remain below pre-pandemic levels for the time being," he said.

Kuroda also said a spike in U.S. consumer inflation was likely transitory and won't lead to an immediate shift in the Federal Reserve's ultra-easy monetary policy.

"As for Japan, there's absolutely no risk of inflation surging such as in the United States and China," he added. "It's not something we are worried about."

Japan's economy likely contracted in the first quarter and analysts expect any rebound to be modest in April-June as new state of emergency measures cool consumption.

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With retailers reeling from the curbs, the BOJ was ready to extend a September deadline for a pandemic-relief programme aimed at channeling funds to small firms, its Executive Director Shinichi Uchida told the same parliament session.