The fate of the rules, which limit the central bank’s ownership of individual REITs to a maximum of 10%, could be discussed at the BOJ’s review of policy tools at its March 18-19 meeting, with an industry estimate putting nearly a third of its REIT holdings at close to the permissible threshold.
Given Japan’s fairly small REIT market, the BOJ may struggle to keep buying the asset unless it relaxes the ownership rule or accepts REITs with lower credit ratings, analysts say. The BOJ currently buys REITs with ratings of AA or higher.
“There’s a good chance the BOJ could tweak the rules for its REIT buying at the March review,” said Koji Ishizaki, senior credit analyst at Mizuho Securities.
There is no consensus yet within the BOJ. Some officials see a tweak in rules as a possibility to ensure the BOJ can keep buying the asset smoothly. But others are cautious of taking on more risky assets, said three sources familiar with the central bank’s thinking.
The issue underscores the tricky balance the BOJ faces at the March review, where it hopes to slow risky asset purchases without stoking fears of a full-fledged withdrawal of stimulus aimed at weathering the prolonged battle with COVID-19.
The BOJ declined to comment.
As part of its stimulus programme, the BOJ buys huge amounts of assets such as exchange-traded funds and J-REITs.
It ramped up buying last March to calm markets jolted by the pandemic, and now pledges to buy at an annual pace of up to 180 billion yen ($1.68 billion).
The BOJ last year bought 114.5 billion yen worth of J-REITs, double the amount in 2019, bringing the total balance of holdings at 669.6 billion yen as of December, BOJ data showed.
The surge of its portfolio has led to the BOJ owning more than 9% for some REITs. An estimate by Mizuho Securities showed the BOJ owned more than 9% for seven out of the 23 REITs it held as of January, including Japan Excellent and Fukuoka REIT.
BOJ Governor Haruhiko Kuroda has said the review won’t lead to a tightening of monetary policy, a sign the bank is not considering discontinuing purchases of risky assets like REITs.
But many BOJ officials are wary of relaxing rules for an unorthodox programme like J-REIT purchases, which critics say distorts prices and exposes the bank’s balance sheet to risk.
“Unless markets are under huge stress, it’s hard to relax the rules,” said one of the sources.
($1 = 107.0200 yen) Reporting by Kentaro Sugiyama and Leika Kihara; Additional reporting by Takahiko Wada; Editing by Muralikumar Anantharaman & Shri Navaratnam