Bank of Japan skips ETF buying, stoking policy speculation
TOKYO (Reuters) -The Bank of Japan said it made no purchases of Japanese exchange-traded funds on Monday despite local shares dropping sharply, stoking speculation that a shift away from ultra-supportive monetary policy is imminent.

It was not clear from data published by the central bank why it did not buy the listed funds even as the Topix index slid 2% - a mark that generally draws a response.

However, a backdrop of a broadly soaring stock market and signs of long-awaited wage and price growth is drawing bets that the Bank of Japan (BOJ) might back away from its ultra-easy policy settings as soon as its next meeting in a week's time.

"With the Nikkei hitting a record high and prices seeming to be rising to meet the BOJ's target, no purchases of ETFs by the BOJ means supporting the stock market has probably become less of a priority," said Jun Morita, general manager of the research department at Chibagin Asset Management.

Japan has for years run negative short-term interest rates and a massive stimulus programme including bond and asset buying to try to reflate its economy. It's finally bearing fruit.

Economic data released on Monday showed Japan was not, in fact, in recession after growth was revised up to an annualised 0.4% for the December quarter.

The Japanese yen rose slightly on the stock purchase data though it had already rebounded with investors wary that Japan's first rate hike in 17 years is around the corner.

Last week the yen climbed 2% to its strongest in five weeks at 146.48 per dollar. Its recovery contributed to the selloff in shares, which was the heaviest in more than five months. [.T]

The yen last traded at 146.70 to the dollar. [FRX/]

SIGNAL

A shift by the BOJ would be a powerful signal that a decades-long policy experiment is over. Reuters reported a growing number of central bank policymakers are warming to the idea of ending negative rates this month on expectations of rising wages.

Japanese government bonds have also come under pressure from bets on a shift, with two-year yields touching 13-year highs last week and the benchmark 10-year yield hitting a one-month high of 0.765% on Monday. [JP/]

The BOJ's absence from the stock market on Monday was "not a direct message" about other policy settings said Takayuki Miyajima, senior economist at Sony Financial Group.

"But this indicates that the BOJ has recognised a change in the environment, as seen in rising wages and prices, We can say a policy shift is imminent."

The BOJ's next policy meeting will be held on March 18-19.

BOJ Governor Kazuo Ueda said last month that the central bank would examine whether to continue its purchases of risky assets such as ETFs when the sustained achievement of its 2% inflation target comes into sight. It hasn't made any ETF purchases this year while the Nikkei has gained 16% - a rally well ahead of the 6% rise in world stocks.

($1 = 146.7900 yen)

(Reporting by Brigid Riley, Junko Fujita, Tom Westbrook;Editing by Chang-Ran Kim, Kirsten Donovan)
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TOKYO (Reuters) -The Bank of Japan said it made no purchases of Japanese exchange-traded funds on Monday despite local shares dropping sharply, stoking speculation that a shift away from ultra-supportive monetary policy is imminent.