The Bank of Japan's decision to accelerate sales of exchange-traded funds could boost its payments to the government, potentially helping Prime Minister Sanae Takaichi finance her costly policy agenda.
The central bank announced Friday that it would increase its annual ETF sales to ¥860 billion ($5.5 billion) on a book-value basis from January, up from the current ¥330 billion. The faster pace would shorten the estimated time needed to complete the sales to about 43 years from 112 years.
The BOJ is required by law to remit its surplus earnings to the government after deducting dividends and other expenses. Gains from ETF sales could increase those payments, providing additional non-tax revenue. "Accelerating ETF sales will naturally increase capital gains and, in turn, the BOJ's surplus earnings," Finance Minister Satsuki Katayama told reporters Friday evening. "We therefore expect payments to the government to rise compared with the previous sales pace."
An estimate by Taro Kimura, a senior economist at Bloomberg Economics, suggests the faster sales would generate about ¥800 billion in additional annual revenue for the BOJ. The potential windfall could help Takaichi fund her agenda, including a two-year sales tax cut on food, a 14-year growth investment plan and higher defense outlays. The additional payments could also help finance a special account for economic security that her government plans to set up.
Kazumasa Ishii, a strategist at UBS Su Mi TRUST Wealth Management Co. and a former Cabinet Office official, said BOJ payments would be better suited to funding multi-year initiatives, such as that special account, rather than plugging a large, temporary revenue shortfall caused by measures such as a consumption tax cut.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing