The Bank of Japan Is Sitting on a Pile of Profit but Isn’t Sharing the Wealth
Making a $130 billion profit in the stock market isn’t as fun as it seems—at least if you’re the Bank of Japan.
Over more than a decade, the Japanese central bank, uniquely among its global peers, has poured hundreds of billions of dollars into local equities and now owns about 7% of all the shares traded on the Tokyo Stock Exchange’s first section. With stock prices near a 30-year high in Japan, shares bought by the central bank years ago have surged in value. Instead of winning praise for its investing acumen, though, the BOJ faces growing pressure to stop acting like the Tokyo whale and find ways to spread the wealth. Some are calling on the BOJ to hand out shares to the public or use its gains to seed corporate innovation, in an echo of debates in the U.S. about whether the stock market’s gains are benefiting ordinary people. Others say the BOJ is interfering with the independence of the stock market and needs—at the least—to stop adding to its holdings. BOJ Gov. Haruhiko Kuroda defended his policy in Parliament on Feb. 24. “I haven’t seen any severe damage to market functions or any big issues involving corporate governance” at the companies that are partly owned by the BOJ, he said. Mr. Kuroda has said the BOJ’s policy helped stabilize the market during its brief crash in March 2020—triggered by the initial Covid-19 wave—and investors fear any hasty move to reverse course could undo the stock market’s advance.
Central banks around the globe have introduced huge asset-buying programs in this century, especially since the 2008 global financial crisis, as well as negative interest rates. Japan, a pioneer with these moves, added the idea of using central-bank money to prop up the stock market, hoping to revive the animal spirits of investors.
The market rose even more than the BOJ hoped, with the Nikkei Stock Average topping 30,000 this year for the first time since 1990.
Most of the BOJ’s purchases are in exchange-traded funds that track the entire Tokyo Stock Exchange first section and it doesn’t buy ETFs focused solely on a particular industry. It doesn’t give specific purchase amounts for each ETF on its eligible list.
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Partly because of quirks in the 225-issue Nikkei Stock Average, which underlies other stock funds the BOJ has bought, the central bank has extra large holdings in some companies. It indirectly holds about a quarter of semiconductor test-equipment maker Advantest Corp. and a fifth of Uniqlo clothing-store operator Fast Retailing Co. , according to NLI Research Institute strategist Shingo Ide.
Many market players expect the central bank to make adjustments as soon as its regular policy meeting on March 18 and 19. Currently it has a target of buying ¥6 trillion, equivalent to $56 billion, in stock funds every year, though it authorized a temporary expansion up to ¥12 trillion during the pandemic. The BOJ could remove its annual buying target, market players say, allowing it to stay out of the market unless a crisis occurs.
Signs of a policy shift have already emerged. While the BOJ has almost always stepped in with afternoon buying when the market suffers a sharp fall in morning trading, it held back on several occasions in February. It did, however, make nearly $500 million in purchases on Feb. 26 when the Nikkei fell 4%. As of March 1, the BOJ was sitting on unrealized gains equivalent to about $132 billion, according to Mr. Ide of NLI Research.
The BOJ’s Mr. Kuroda hoped rising stock prices and other monetary easing would trigger robust investment by companies and consumer spending. He tied the stock purchases to his 2% inflation target.
But with pandemic-related restrictions, prices have been falling in recent months compared with year-earlier levels and economists say gross domestic product is likely to shrink this quarter. Politicians have noticed the contrast between a struggling economy and a roaring stock market in which government entities are the biggest players. After the Bank of Japan, a government fund that invests the nation’s pension reserves is the second-largest holder of Japanese stocks. Together they hold about one in every eight shares.
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https://www.wsj.com/articles/the-bank-of-japan-is-sitting-on-a-pile-of-profit-but-isnt-sharing-the-wealth-11615118413