BOJ Heat Gauge Shows No Need to Buy J-REITs, Ex-Official Says

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A key lending gauge shows the Bank of Japan no longer needs to buy shares in real estate investment trusts as risks to the financial system pile up, according to a former executive director of the central bank.

In fact, the BOJ’s buying of J-REIT shares and its interest rate policy are partly responsible for the lending gauge -- which measures real estate lending as a share of the economy -- rising to the highest level since the height of the nation’s asset bubble, Atsushi Miyanoya said in an interview Monday.

“The BOJ can’t say it has nothing to do with that,” Miyanoya said.

The lending gauge has now turned "red," the BOJ said last week in its semi-annual financial system report. While the property market isn’t overheating, lending to small firms and individuals for rental properties needed to be monitored, the central bank said, playing down any similarities to the bubble.

Read more about the warning sign from real estate lending

No BOJ watchers expect any change to the BOJ’s purchases of J-REITs or any other assets as it concludes a two-day policy meeting on April 25. The BOJ began buying J-REITs in 2010 under then-Governor Masaaki Shirakawa as part of efforts to coax investors into riskier assets. The buying soared under Governor Haruhiko Kuroda’s unprecedented stimulus.

Kuroda has said the asset purchases are an important part of his stimulus package and the bank is determined to stay the course.

The BOJ now pledges to buy 90 billion yen ($804 million) of J-REITs annually, depending on market conditions. The pace slowed last year to 40 percent below the target, fueling speculation the bank was starting to grow concerned about the real estate market.

Road Ahead

Miyanoya said he doesn’t expect the BOJ to stop its J-REITs purchases because doing so would be hard to explain when inflation is so far from its 2 percent target. Excluding fresh food, inflation stood at 0.8 percent in March.

A central bank quarterly economic outlook report due Thursday is expected to show that the BOJ projects inflation to stay below 2 percent even in the year ending March 2022, according to a Bloomberg survey.

That would indicate the BOJ must stick to its stimulus for even longer, prompting more discussion of how the central bank plans to manage the accumulating side effects. Some critics are already calling for the BOJ to rethink its policy and its commitment to reaching 2 percent inflation.

“Japan’s financial system has maintained stability so far but risks are steadily rising,” Miyanoya said.

--With assistance from Shiho Takezawa.

To contact the reporters on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net;Masahiro Hidaka in Tokyo at mhidaka@bloomberg.net

To contact the editors responsible for this story: Brett Miller at bmiller30@bloomberg.net, Henry Hoenig, Paul Jackson

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