Counteracting large-scale asset purchase program: The Bank of Japan’s ETF purchases and securities lending

Abstract

This study investigates the impact of the Bank of Japan’s (BOJ) exchange traded fund (ETF) purchasing program on the stock lending market. In particular, we focus on the fact that stocks held by ETF managers for the BOJ are lendable to other investors in order for them to make a short position in stock market. Using individual stock level data, we show that expansions of the ETF purchase program have substantially increased the supply of stocks in the lending market by changing the behavior of stock holders as the BOJ is expected to be a “buy-and-hold” type of investor. This result implies that such an active stock lending market would help to reduce the side-effects of the ETF program whereas the squeezing effect of the program on supply–demand balance in spot stock markets is mitigated.