The Bank of Japan (BoJ) is set to face its first annual loss for nearly 40 years as a result of losses in excess of £20bn on its holdings in ETFs, as reported by Reuters.
A recent rout in stock prices will negatively affect the near-¥30trn ($272bn) of ETFs held by the Japanese central bank, which doubled down on its purchases this month, raising its buying target to ¥12trn per year.
It began purchasing ETFs at an annual rate of ¥1trn in 2013, when the Nikkei 225 index traded at around 12,000, rising to ¥3trn per year in 2014 and up to ¥6trn annually by 2016 in an attempt to boost economic growth.
Over time, this has led the average cost of entry for the central bank to rise to 19,500, but with the index closing at 18,092 today (24 March), the market is still a long way off that price.
This price disparity is set to cost ¥2-3trn (£15-23bn), which the BoJ has acknowledged as unrealised losses, an amount that would erase the ¥1.7tn of recurring profits it is anticipated to raise from interest payments on its bond holdings.
If the market falls even further, the central bank could suffer worse still, wiping out its reserves and becoming "insolvent on paper", according to some analysts.
Yuuki Fukumoto, strategist at NLI Research, said: "If there is a lesson to be learned, it is that it was pretty meaningless for the BoJ to buy stocks when the economy was doing okay."