Japan's opposition proposes using BOJ's ETF dividends for child care

Bank of Japan ETF Holdings: Japan's main opposition party, the Constitutional Democratic Party of Japan (CDP), has proposed a novel source of funding for a planned $23 billion child care support package: dividends from the Bank of Japan's (BOJ) massive exchange-traded fund (ETF) holdings.

This proposal reignites the debate surrounding the BOJ's unconventional monetary policy, specifically its controversial ETF purchase program initiated in 2010.

The BOJ discontinued this program last month, but its legacy remains. The central bank now holds over 60 trillion yen ($389 billion) worth of ETFs, making it the dominant player in the Japanese stock market. Critics argue this exposure poses undue risk to the BOJ's financial health.

The party proposes that the government acquire the BOJ's ETF holdings through an exchange for government bonds. The dividends generated by these ETFs would then be used to fund a 1 trillion yen chunk of the child care package designed to address Japan's declining birth rate. According to their calculations, the annual dividends could reach 1.39 trillion yen if the stock market remains stable.

Prime Minister Fumio Kishida has already voiced his opposition to this plan. He argues that the BOJ's ETF dividends are already allocated to the general budget and cannot be redirected without issuing additional debt.

This proposal highlights the potential political battles surrounding the BOJ's quantitative easing program. While the program is officially over, the massive amount of ETFs held by the central bank raises questions about their future use and potential impact on government policies. The fate of the CDP's proposal and the ultimate source of funding for the child care program remain to be seen.

(With Reuters inputs.)