The Bank Of Japan Bought 5.6 Trillion Yen In Stocks Last Year
There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.
- Ludwig von Mises, Human Action
In recent years, thanks to central bank intervention in virtually every asset class, writing about capital markets in the context of some valuation or fundamental analysis framework has become a laughable, surreal, and self-defeating exercise, and here is a perfect example why.
For one reason or another, overseas investors dumped Japanese stocks by the largest margin in 31 years in the fiscal year ended Sunday, according to official market data: specifically, market participants abroad unloaded about 5.63 trillion yen ($50 billion) worth of shares on a net basis, the Tokyo Stock Exchange reported Thursday, for a second straight year of net selling and the highest sell-off since 1987.
And yet this barely caused a ripple in asset prices for one simple reason: the Bank of Japan's asset purchases absorbed all the bleeding, exposing the central bank's outsize role in the market. Indeed, as the Nikkei adds, this near-record liquidation was matched nearly yen for yen by the BOJ's pumping of money into the economy through asset purchases, with the central bank buying 5.65 trillion yen worth of equity!
Of course, there were legitimate reasons why foreign investors felt the urge to liquidate Japanese holdings: international investors unloaded Japanese shares as they became alarmed by concerns about a global slowdown. With many Japanese manufacturers reliant on exports, overseas analysts cut their recommendations for those stocks amid China's decelerating economy and Beijing's trade war with the US.
Last July, the world's largest asset manager, BlackRock, downgraded its investment stance on Japanese equities to "neutral" from "overweight", the first such revision in about 20 months.
Separately, the world's 3rd latest asset manager, State Street Global Advisors, shrank its portfolio allocation in equities during the latter half of 2018, citing the protracted Sino-U.S. trade war and how that would affect risk assets. The investment house also downgraded its recommendation for Japanese equities from neutral this year, citing the risk of yen appreciation.
In light of such prevailing bearishness among foreign investors, one would think the Nikkei got clobbered, and yet the broadest Japanese index is now above where it was this time last year. Why? Because in its attempt to preserve confidence and avoid what could be a potentially devastating asset selloff in a world in which stock markets are the leading indicators for regional and global economies, the BOJ stepped up its purchases of Japanese stocks through ETFs. A first among central banks, the program began in 2010 when the Nikkei Stock Average was trading below 10,000 points. The central bank's stated objective then was "to lower the risk premium, and the purchasing volume stood at 450 billion yen."
That was just for popular cover, because in 2016, the BOJ raised its annual ETF purchasing goal to 6 trillion yen.
Since then, Kuroda unleashed an unprecedented stock buying rampage and as of Wednesday, the central bank's estimated aggregate ETF balance totaled 29 trillion yen (about quarter trillion dollars), which is equivalent to nearly 5% of the market capitalization on the TSE's first section.
https://www.zerohedge.com/news/2019-04-05/bank-japan-bought-57-trillion-stocks-last-year