TOKYO (Reuters) – Bank of Japan Governor Haruhiko Kuroda said he was scrutinising the economic fallout from “very unstable” global market moves, reiterating the central bank’s readiness to ramp up stimulus to fight growing risks from the coronavirus outbreak.

He also revealed the BOJ’s own estimate showed its holdings of exchange-traded funds (ETF) may incur paper losses once Tokyo’s Nikkei stock average falls below 19,500.

“There’s uncertainty on when the coronavirus will be contained, and markets are making very unstable moves,” Kuroda told parliament on Tuesday.

“We’ll continue to keep an eye out on how the spread of the virus could affect Japan’s economy and prices, particularly via domestic and overseas market developments, and act appropriately as needed without hesitation,” he said.

The Nikkei average .N225 stood around 19,450 on Tuesday after briefly slipping below 19,000 in morning trade.

Asian shares bounced and bond yields rose from historic lows on Tuesday as speculation of coordinated stimulus from global central banks and governments calmed panic selling.

The market rout and the widening hit to the economy from the coronavirus epidemic are adding pressure on the BOJ to ramp up stimulus at next week’s rate review.

Markets are rife with speculation the BOJ could pledge to buy ETFs at a faster pace than the current commitment to do so by roughly 6 trillion yen ($58.12 billion) per year.

Sources familiar with the BOJ’s thinking say such a step is among options the central bank may consider if it approaches the ceiling as a result of aggressive purchases.

Kuroda told parliament the BOJ had bought a cumulative 2.04 trillion yen worth of ETFs since October last year.

When taking account of recent price moves, the BOJ estimated the market value of its ETF holdings would fall below book value – and suffer latent paper losses – if the Nikkei average falls below 19,500, he said.

The remarks underscore the cost the central bank incurs by loading up on ETFs, which does not have maturity and thus won’t fall off the central bank’s balance sheet unless it sells them.

Under a policy dubbed yield curve control, the BOJ guides short-term interest rates at -0.1% and the 10-year government bond yield at around zero. It also buys risky assets such as ETFs to funnel money to the economy.

Critics have warned the central bank’s ETF buying distorts market pricing and puts the central bank’s credibility on the line by hurting its financial health.

In a bid to soothe market jitters, the BOJ issued an emergency statement on March 2 pledging to offer ample liquidity via market operations and asset buying.

Since then, the BOJ has been accelerating the pace of ETF buying. It bought 100.2 billion yen ($979 million) on Monday, matching a record pace of purchases made twice last week.

Before the emergency statement was issued, the BOJ would typically buy about 70 billion yen per day whenever it stepped into the market.

($1 = 103.2300 yen)

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