Bank of Japan (BoJ) is becoming one giant (a “whale”) hedge fund buying up large quantities of ETFs

The Bank of Japan (BoJ) buying up ETFs have made it a top 10 shareholder in about 90 percent of the Nikkei 225 stock average and is said to be “boosting investor confidence.” Boosting investor confidence? How does that work? If investors had any confidence in in the first place in Japan’s corporations, the BoJ wouldn’t be stepping in turning itself into a giant hedge fund. ETFs (Exchange-Traded Fund) are a stop gap fix to major structural problems with Japan Inc. Why? Because ETFs typically have “higher daily liquidity and lower fees than mutual fund shares, making them an attractive alternative for individual investors”. This allows investors to get in, take their profits and get out of the stock market faster at less costs. The Bloomberg article below suggests the BoJ is going to continue to increase its purchases of ETFs. The BoJ now owns an estimated 55 percent of ETFs in Japan’s corporations and has been increasing steadily its ETFs since 2010 buying about “3 trillion yen ($27.2 billion) of ETFs every year”. Artificial insemination, sorry, I mean stimulation gone nuts. It’s state intervention in stock markets. Rather than reform Japan’s corporate governance, this continued ETF purchasing only exacerbates deep structural problems.

Source: Bloomberg

The Tokyo Whale Is Quietly Buying Up Huge Stakes in Japan Inc.

April 25, 2016

BOJ is an estimated top 10 owner in about 90% of Nikkei 225
Central bank seen boosting ETF purchases as soon as this week

They may not realize it yet, but Japan Inc.’s executives are increasingly working for a shareholder unlike any other: the nation’s money-printing central bank.

QuickTake Abenomics

While the Bank of Japan’s name is nowhere to be found in regulatory filings on major stock investors, the monetary authority’s exchange-traded fund purchases have made it a top 10 shareholder in about 90 percent of the Nikkei 225 Stock Average, according to estimates compiled by Bloomberg from public data. It’s now a major owner of more Japanese blue-chips than both BlackRock Inc., the world’s largest money manager, and Vanguard Group, which oversees more than $3 trillion.

To critics already wary of the central bank’s outsized impact on the Japanese bond market, the BOJ’s growing influence in stocks risks distorting valuations and undermining efforts to improve corporate governance. Proponents, meanwhile, say the purchases provide a much-needed boost to investor confidence. With the Nikkei 225 down 8.4 percent this year and inflation well below official targets, a majority of analysts surveyed by Bloomberg predict the BOJ will boost its ETF buying — a move that could come as soon as Thursday.

“For those who want shares to go up at any cost, it’s absolutely fantastic that the BOJ is buying so much,” said Shingo Ide, chief equity strategist at NLI Research Institute in Tokyo. “But this is clearly distorting the sanity of the stock market.”

Please go to Bloomberg to read the entire article.


2 thoughts on “Bank of Japan (BoJ) is becoming one giant (a “whale”) hedge fund buying up large quantities of ETFs

  1. The government obviously cannot buy mutual funds because mutual funds are MANAGED by a fund manager who picks the stocks. This would create an unacceptable conflict of interest. ETFs are by definition INDEX funds and seek to mimic whatever index they follow and are thereby neutral and unbaised. It has nothing to do with liquidity. The J government doesn’t really want to be a hedge fund (when will they sell and take profit?) or support stock prices as much as it wants to prevent bankrupcies and takeovers from foreigners. Keeping pricxces high keeps companies liquid and keeps the gaijin out. Since the goverment doesn’t make any money itself, essentially, the Japanese public is becoming an investor and paying for this illogical behavior through higher taxes or inflation driven by more money printed. We saw similar behavior years ago but it was cross-shareholdings among large corporates. Now it is the government who has become the cross-shareholder. It is all part of Japanese Socialism. Govt owns private enterprise……sort of.

    • Yeah, it’s dysfunctional, inefficient, a waste of resources and adds further delay to urgently needed corporate reform in Japan. The downside of the central banking model and should be abolished.

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