Posted by on December 11, 2017 2:25 am
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Categories: Bank of Japan Business Economy Economy of Asia Economy of Japan Exchange-traded fund Finance Hong Kong japan Japanese Bankers Association Japanese yen Morgan Stanley Nikkei Nikkei 225 Nomura Volatility Yen

A few months ago, we noted that the Bank of Japan had decided to throw every textbook out of the window and crank their plunge-protection to ’11’after reports surfaced that they owned a staggering 75% of Japan’s ETFs.

The BOJ first started their buying spree in December 2010 – when they held no ETFs at all – and have since accumulated some $150 billion in aggregate holdings.  The buying was all as part of unprecedented “economic stimulus” which has undoubtedly contributed to the Nikkei 225 Stock Average surging roughly 125% since December 2010.

Here’s a quick graphical recap of the program courtesy of Bloomberg…

…and another look which shows the central bank owns three quarters of ETFs by market value…


…all of which has resulted in the following bubble stock market appreciation…

Not surprisingly, since the program started, everyone from the head of the country’s stock exchange to the chairman of the Japanese Bankers Association has questioned the ETF program’s size and whether it artificially depresses volatility.

Now, with the Nikkei surging to 25 year highs, analysts are increasingly saying it’s time for the BOJ to put this specific component of their many controversial bubble-blowing policies to rest.  Per Bloomberg:

Sometime next year, the BOJ will cut its annual buying target for domestic exchange-traded funds by as much as a third from the current 6 trillion yen ($53 billion), says Toru Ibayashi, head of Japanese equities at UBS Wealth Management in Tokyo. Soichiro Monji of Daiwa SB Investments Ltd. expects a similar reduction, but by the end of March.


“Four trillion yen,” UBS’s Ibayashi predicted. “And everybody will understand.”


“Fear of deflation was behind the 6 trillion yen target,” Daiwa SB’s Monji said in an interview. “We’re no longer in that kind of environment. Risks are now skewed toward the upside, rather than the downside. It’s hard for the central bank to justify its buying spree.”


“Given the circumstances at this point in time, it is difficult for the BOJ to keep buying ETFs at six trillion yen per year,” Ibayashi said.

Jonathan Garner, chief Asia and emerging markets equity strategist at Morgan Stanley in Hong Kong, described the ETF purchases as “perhaps the most controversial part” of the bank’s stimulus program which includes everything from negative interest rates and yield-curve control to buying tens of trillions of yen of bonds each year, on top of its stock purchases. 

Of course, not everyone agrees as Naoki Kamiyama, chief strategist for Nikko Asset Management Co. in Tokyo, and Hisao Matsuura, a strategist at Nomura Holdings Inc., both saying the BOJ won’t cut its ETF target anytime soon as “it would hurt investor confidence and make a pickup in inflation much less likely…”

You know, because every central bank’s primary objective is to boost “investor confidence” by creating massive asset bubbles that make the masses feel richer…at least until the marginal stimulus fails and the whole ponzi comes crashing down…

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