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According to the Nikkei Asia review, the Bank of Japan (BoJ) will be looking at making adjustments to the ETFs that the central bank purchases as part of its monetary policy.

Key quotes

“The Bank of Japan will discuss reducing investment in exchange-traded funds that track the Nikkei Stock Average in favor of those that follow broader indexes such as the Topix when policymakers meet next week, answering criticism of the BOJ’s influence on stock prices.

With the central bank plowing 6 trillion yen ($54 billion) annually into ETFs, concern has grown about the program’s outsize impact on the 225 components of the Nikkei average, which are among the largest companies on the Japanese stock market. Roughly 1.5 trillion yen goes into funds tracking the Nikkei benchmark each year, while around 4 trillion yen is invested in ETFs mirroring the Topix index of all issues on the Tokyo Stock Exchange’s first section — an index that also includes all Nikkei components.

Through its ETF purchases, the central bank has become a top-10 shareholder in nearly 40% of Japan’s listed companies, Nikkei has calculated. The BOJ owns about 4% of the first section by value.

The BOJ appears set to cut its price growth forecasts at the meeting in light of sluggish inflation in recent months. The bank’s target of 2% inflation is not expected to be met until 2020 at the earliest.

This means some level of sustained monetary easing appears inevitable. But the adverse impacts of that policy are growing more apparent: Ultralow interest rates have crimped banks’ earnings and made bond markets dysfunctional. The BOJ faces a difficult discussion on how to keep Japan on track to 2% inflation when additional easing — the bank’s favored policy option — is no longer feasible.”