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A pedestrian passes the headquarters of the Bank of Japan in Tokyo on May 22, 2020.KIM KYUNG-HOON/Reuters

The Bank of Japan (BOJ) refrained from buying Japanese stock-linked exchange trade funds (ETFs) on Tuesday, a central bank disclosure showed, breaking from its practice of picking up ETFs when the market is down 1 per cent or often even less.

The Topix index fell 1.25 per cent by midday on Tuesday, a level that has prompted the BOJ to purchase ETFs in the past.

This is the first time the BOJ has not bought ETFs on a day when the Topix index has shed more than 1 per cent since Governor Haruhiko Kuroda took office in 2013, analysts said.

When the central bank was most active, it even bought ETFs when the drop in the Topix was much smaller than a percent.

But the BOJ’s inaction was not a complete surprise to market players as the central bank had last month tweaked its policy statement to indicate it would make its buying more flexible.

Stock ETF purchases have been an important pillar of Kuroda’s big stimulus.

But after eight years of heavy intervention, the BOJ has become the single biggest owner of Japanese stocks, holding about 40 trillion yen ($369 billion), or more than 5 per cent of the market, fuelling worries about its over-presence.

“The BOJ has said it has no intention to reduce its purchase with its latest policy. But it is clear it wants to buy as little as possible,” said Shingo Ide, chief equity strategist at NLI Research Institute.

Kuroda initially set the BOJ’s ETF purchases at 1 trillion yen per year but that snowballed to 6 trillion yen by 2016 as the central bank failed to meet its inflation target.

The BOJ doubled down in 2020 when markets were pummelled by the COVID-19 pandemic, saying its buying could go to a maximum of 12 trillion yen, though in the end, its buying settled at just a bit more than 7 trillion yen last year.

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