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BOJ Now Owns 90% Of The Top 10 Stocks

Published

8 years ago

June 9, 2016

Luke Phillips

It is apparent that the Central Banks have become intertwined in the valuations of Treasury and corporate bond markets.

However, that’s not all that there is it to it.

Their arm has stretched even further into stocks, a fact that is evident following the impending announcement, which, if Goldman happens to be correct, may witness the Bank of Japan (BOJ) double up its EFT (exchange-traded funds) purchases from a JPY 3.3 trillion to a whopping JPY 7 trillion.

That’s astonishing.

But just to unveil the mask even further, this would reveal the Bank of Japan as a top 10 holder in approximately 90% of all stocks on the Nikkei 225.

Where are all these Surprising Figures Coming from Though?

Public research put in print in a Bloomberg article by celebrated Japan Market analysts Anna Kitanaka, Nao Sano and Yuji Nakamura back in April 2016 explicitly brought forth this startling statistic.

According to the three iconic figures named above, the Bank of Japan also happens to be a major owner of even more Japanese blue-chips.

55% of Japanese EFTs to be precise happens to be the number, which supersedes even the largest money manager in the entire universe (BlackRock Inc.) and Vanguard Group, which in totality oversees more than 3 trillion dollars.

The small majority would look at the whole saga as a Japanese stock market’s nationalization move.

And, in reality, it’s hard to argue against as it can be viewed as such from a different perspective, except that the Bank of Japan gained its independence from the government of Japan in the year 1998.

Moreover, the BOJ is typically a chartered organization with, of course, a state-protected monopoly over money supply just like the United States Federal Reserve System.

So, this on its own complicates the situation even further.

As a matter of fact, we would be a lot wiser to conquer with Bloomberg’s point of view.

Which means as of now, many may not realize it at all, but the dedicated executives of the well-established Japan Inc (the money-printing central bank) are increasingly and unceasingly going the extra mile for a shareholder comparable to none.

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Let’s take it that you want to sell your shares to Japanese Company. Where will end up?

Let me put facts straight for you then; they all find their way to the BOJ.

But, is all this ethical? What Should the Stock Prices Be Reflecting in Reality?

The above question, frankly, deserves an answer, however, you’d better treat it just as a rhetorical one.

Rhetorical so because, the nature of how the world operates has altered and as the chief strategist for the NLI Research Institute in Tokyo, Shingo Ide, puts it; it’s an apparent distortion of the sanity of the stock market.

All that equities have been reflecting is the vagary of the central bankers while in the real sense, it’s the earnings and principal characteristics that they should be more into as any an unanticipated moves could impact the market negatively.

Monetary Policy; Security Purposes

A zealous program announced in April 2013 by Haruhiko Kuroda, precisely geared towards the purchase of bonds and stocks the governor of the Bank of Japan.

With the anticipation of doubling Japan’s monetary base, the Bank of Japan perfectly laid out a plan to purchase between 60-70 trillion yen worth of securities.

The BOJ, however, is neither the first and nor is it the only, government agency to buy stocks of a private company.

The only difference that singles outs the Japanese scenario is the vast magnitude and the somewhat open-ended commitment.

And since the BOJ now stands to be the ever-felt presence in Nikkei, Japan investors are as well are left in an uncertain state, since its primary goal of curbing deflation widely conflict with many investors target of getting dividends and capital gains on returns.

The benefits, no doubt will leave many in Tartars particularly to those shown in the graph below:

The Tokyo Whale is Quietly and Prudently Buying Major Stakes in Japan Inc.

The Bank of Japan has certainly been busy in the stocks market and now, happens to be a major shareholder in a minimum of 200 out of the total number of 225 companies within the Nikkei.

The graph below clearly tells the tale of how the Bank of Japan now stands to be an owner of more than half of all EFTs in Japan:

As a result of taking in so many stocks, the BOJ, just like the many other big money players in the commodities market, has been branded the ‘Tokyo Whale’ by the formerly mentioned Japan Market Analysts Kitanaka, Sano, and Nakamura.

The Tokyo whale is even expected to grow even bigger. Goldman Sachs’ analysts came up with a prediction that BOJ EFTs purchases will shoot from 3.3 to 7 trillion yen per year.

Mind you; this came to pass merely a week before the Bloomberg article was published.

In the same week, the same activity was also predicted by Reuters in their published article.

All this cannot simply be a big genuine coincidence but rather a clear depiction of the way that things could work out shortly:

An Asset Bubble on the Horizon
Well, with the current state of things, particularly via the in-play policies, many things hang by a thread and the Bank of Japan attracts a significant risk of setting a float a colossal asset bubble since:

The experts in the matters of markets analysis would argue that Nikkei I isn’t attached to the fundamentals, which is very true.

If the Bank of Japan follows the predicted pattern and takes in even more security purchases, the bubble will get inflated even more.
The inflation may land the BOJ in a very tight spot, and one full of uncertainty. It all happens so only since valuations for Japanese firms could get crushed following scatter-offs of outside investors amid very negligible sell-offs.
Making matters even worse, it would mean that the accurate pricing of the Japanese Yen by the International currency markets will be quite a big hustle.
Additionally, if it happens that the Bank of Japan decides to part ways with some or worse, all of its private security assets, quite a substantial amount of yen could vacate the market. The vacating of the market could probably lead millions to shy away from holding yen from a fear that it could deflate any time.

Some Bitter Truth

It’s a high time that someone makes a decision, and the BOJ stands at the center of it all.

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