A couple of weeks ago in “Revisiting The Tokyo Whale,” we took a few minutes to remind readers just how large the Bank of Japan’s footprint in the Japanese ETF market truly is.
We thought it was important to keep the story front and center lest it should get lost in the incessant chatter about Fed balance sheet normalization and speculation about more hawkish forward guidance from the ECB.
Specifically, we showed you the following chart from SocGen:
Kuroda, SocGen estimated, had amassed a ¥15.7tn ($144bn) ETF portfolio. That would mean the BoJ owns roughly 75% of the total assets in Japanese equity ETFs.
Implicit in that assessment is the notion that the bank is a major shareholder in some Japanese corporates. Here’s a list (again from SocGen) that shows the largest BoJ holdings at the individual company level and what % of each stock’s total market cap Kuroda controls:
Well, if you read the post linked above the following shouldn’t come as a surprise, but we wanted to highlight it anyway because again, there are a lot of people talking about central banks taking their foot off the proverbial pedal.
As you’ll read below, the BoJ is still mashing on the gas…
The Bank of Japan has stepped up purchases of exchange-traded funds as part of its monetary easing policy, with the balance surging to 15.93 trillion yen ($144 billion) as of March 31.
The total marks an 80% rise from a year earlier and more than a sevenfold increase since the central bank kicked off its quantitative and qualitative easing — adding riskier assets to its balance sheet — in April 2013. ETF purchases have gradually increased under the unconventional policy, expanding to 6 trillion yen a year in July 2016 from 3.3 trillion yen.
Now before you read the next part of the Nikkei piece, do recall what SocGen said about the timing of these purchases. To wit:
Overall, from January 2011 to end-March 2017, 85% of ETF purchases declared by the BoJ occurred on a day where the TOPIX index registered a negative return (99% when the daily return was below +1%). There were only two occasions when the BoJ made purchases of Nikkei & TOPIX ETFs when the TOPIX closed above +1%.
Now back to Nikkei:
The bank apparently buys frequently on days when the stock market dips in the morning, serving to stabilize share prices.
“The BOJ’s ETF purchases help provide resistance to selling pressure against Japanese stocks,” says Rieko Otsuka of the Mizuho Research Institute.
Should the current pace of buying continue, the BOJ’s ETF holdings would reach about 30 trillion yen in about two years. The market capitalization of the Tokyo Stock Exchange’s first-section companies comes to 550 trillion yen.
The bank’s growing market presence has raised concerns about the repercussions when the easing policy eventually winds down. When speculation of a BOJ exit grows, the anticipated cutbacks on ETF purchases would accelerate selling of Japanese stocks. As a precaution against a sharp market decline, “the BOJ many need to set aside provisions,” Otsuka says.
Or, summed up visually…