BOJ's Kuroda signals readiness to top up ETF purchases

By Leika Kihara and Sumio Ito

TOKYO (Reuters) - Bank of Japan Governor Haruhiko Kuroda said on Wednesday the central bank's presence in the exchange-traded fund (ETF) market is "not too big," signalling that topping up purchases of ETFs could be a real, near-term option.

Kuroda brushed aside the idea of introducing "helicopter money," or sending money directly to citizens instead of via banks, saying that doing so conflicts with Japan's legal framework.

The BOJ buys ETFs, as well as Japanese government bonds (JGBs) and trust funds investing in property, as part of its massive stimulus programme. It held about 7.8 trillion yen (50 billion pounds) of ETFs as of September 2015, roughly half the size of Japan's market.

"I don't think the BOJ's presence in the (ETF) market is too big," Kuroda told parliament, adding that new ETFs can be cobbled together "as much as possible" with listed stocks in the Tokyo Stock Exchange's 500-trillion-yen market.

"There continues to be plenty of reason to affect risk premium of asset prices," Kuroda said, suggesting that topping up ETF purchases could be a strong future policy option.

BOJ officials are growing more receptive to stepping up monetary easing measures by buying more ETFs invested in shares, as weak global growth threaten the country's fragile economic recovery, sources have told Reuters.

BOJ policymakers will likely debate the possibility of easing policy further at a rate review next week, as a raft of gloomy data threatens their scenario that a moderate economic recovery will accelerate inflation towards a 2 percent target, sources have told Reuters.

RULES OUT 'HELICOPTER MONEY'

Under the current programme introduced in April 2013, the BOJ buys 3.3 trillion yen of ETFs annually, much smaller than the 80-trillion-yen per year in purchases of government bonds.

The central bank added negative interest rates to the stimulus programme in February, and has said it was ready to ease again by buying more government bonds, risky assets like ETFs or pushing interest rates deeper into minus territory.

Kuroda declined to comment on whether the BOJ could ease next week. While the BOJ cannot indefinitely keep buying government bonds, there were plenty of bonds left to purchase for the time being, he added.

Some market players speculate that the BOJ may resort to "helicopter money" in the future, under which the central bank would underwrite government debt indefinitely so that the money can be paid out directly to households.

"Helicopter money would be combining fiscal and monetary policies," which would be against Japan's current law that prohibits the BOJ to directly underwrite government bonds.

"It's unthinkable. The BOJ isn't thinking about this at all," he said.

(Reporting by Leika Kihara; Editing by Jacqueline Wong & Shri Navaratnam)