First thing Monday morning, we mentioned that the yen’s winning streak had extended to a seventh consecutive session, a development which is obviously not the best news for Japanese equities.
The Topix is of course in a bear market and on Tuesday, following the Christmas Eve massacre on Wall Street, the Nikkei dove 4% out of the gate to trade below 20,000 for the first time in some 15 months.
(Bloomberg)
The gauge is now 20% below its October highs, and although things could improve throughout the session, for the time being, the Nikkei has now joined the Topix (and the Nasdaq and myriad other global benchmarks) in bear market territory.
(Bloomberg)
Again, persistent yen strength isn’t helping. USDJPY was down for an eighth consecutive session on Tuesday, as global risk-off sentiment catalyzes safe-haven flows and jitters about what Trump’s incessant criticism of Jerome Powell might mean for the Fed weigh heavily on the greenback. The ongoing government shutdown isn’t doing the dollar any favors either.
(Bloomberg)
The December losses for the Topix and the Nikkei are astonishing. This is the worst December for the former in history. Have a look:
(Bloomberg)
This is a headache for Kuroda and the BoJ. The more yen strength that comes through, the more difficult the inflation-targeting effort and as you’re probably aware, that effort isn’t going well in the first place.
As far as the equity selloff goes, remember that you can’t designate your massive equity book “held to maturity” because stocks don’t “mature”. Given that, a bear market isn’t great news for the BoJ’s equity holdings which nobody knows how they’re ultimately going to get rid of.
(Goldman)
For his part, Aso thinks everything is generally fine. “Uncertainties stemming from the U.S.-China trade fight may be triggering selloffs in financial markets but I’m not overly worried about recent market moves,” the FinMin told reporters in Tokyo on Tuesday. “Japan corporate fundamentals are good”, he added.
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Kuroda get out there and hit the bid!
Is it possible (legal) for the BoJ to sell equity back to the issuing corporation privately, effectively retiring the shares?
Yes it is legal. Technically, the BoJ is buying ETFs from asset management companies. The central bank does not own the shares its buys through ETFs directly. If/when the BoJ sells, it will sell ETFs or ask the asset manager to unwind the ETF shares. Legally, it is the asset management company that will (likely) sell the underlying shares back to the issuer who will either hold them as treasury stock or cancel the shares. Most Japanese companies do not immediately cancel treasury stock but hold it on their books for a time and either resell the shares to the public or eventually cancel them. Good question, Captain.