BoJ’s ETF holdings may help fund tax cut, LDP executive says
TOKYO: Tapping the Bank of Japan’s holdings of exchange-traded funds (ETF) may be an option to fund a planned sales tax cut, a ruling party executive said in a recent online programme, a sign its vast asset holdings could come under the political spotlight. The government on Wednesday signed off on Prime Minister Sanae Takaichi’s flagship plan to slash the sales tax on food items to 1percent from…
The Bank of Japan (BOJ) may become a potential source of funds to support a proposed sales tax reduction in Japan, according to a ruling party official. Prime Minister Sanae Takaichi unveiled her plan to cut the sales tax on food items from 8% to 1% for a two-year period, despite mounting concerns about the country's already precarious financial situation.
Takaichi has ruled out the option of taking on new debt and instead seeks revenue sources outside of taxation, which are estimated at about 5 trillion yen (USD31.71 billion) per year.
Daishiro Yamagiwa, a senior lawmaker from the ruling Liberal Democratic Party's (LDP) tax panel, suggested that the BOJ's vast holdings of exchange-traded funds (ETF) could be tapped as an avenue to help cover this revenue shortfall. However, he acknowledged that the BOJ's current plan would take a century to sell all of its ETF holdings, as stock prices are currently quite high, and accelerating the sales pace may not be detrimental.
In September last year, the BOJ initiated a plan to gradually sell its ETF holdings in the market at an annual rate of approximately 330 billion yen as part of its strategy to dismantle the remnants of its massive stimulus. The BOJ has explained that they chose to move slowly to prevent any market disruption when unloading the 37-trillion-yen worth of ETFs accumulated over 13 years of purchases to reflate a struggling economy.
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