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Bank Of Japan's Plunge Protection Desperation: "May Buy Individual Stocks"
Earlier this month, the BoJ surveyed 40 dealers and discovered something shocking: buying the entirety of JGB gross issuance has had a rather dramatic effect on liquidity. In fact, two thirds of the firms who participated reported having “some or a lot” of problems and described bid-asks as “not very tight.” Today, an internal report from the central bank indicates officials are slowly coming to accept the fact that their actions have consequences although as you can see from the following, the fact that the BoJ is literally buying all of the bonds is still low on the list of factors the central bank figures might be negatively affecting liquidity...
Via Bloomberg:
Impact on market prices from a single trade or breadth of orders in futures and rates on repurchase agreements are among indicators suggesting liquidity has fallen since the autumn of 2014: BOJ report
Liquidity may have been affected by sharp drop in long-term yields; short- and medium-term yields becoming negative at about the same time; structural changes in markets; BOJ bond buying; and change in financial regulations, according to BOJ report.
We also recently noted that Japan isn’t particularly enamored with the idea that stock prices can sometimes decline and so in order to correct the problem, the BoJ has stepped in two thirds of the time equity markets open lower and brought its balance sheet to bear on any sign of selling pressure thus underwriting an equity rally:
Since 2010, The Bank of Japan has 'openly' - no conspiracy theory here - been a buyer of Japanese stock ETFs. Their bravado increased as the years passed and Abe pressured them from their independence to 'show' that his policies were working to the point that in September 2014, The BoJ bought a record amount of Japanese stock ETFs taking its holdings to over 1.5% of the entire market cap, surpassing Nippon Life as the largest individual holder of Japanese stocks.
As it turns out, the central bank may now run into the same inconvenience in its efforts to control the stock market that it encountered on the way to monopolizing the JGB market: there’s only so much out there to buy. Here’s more from Bloomberg:
BOJ held 3.85t yen ($32.0b) of ETFs at end-2014 and plans to boost these holdings by 3t yen per year; at this pace, the current market value of 11.5t yen in ETFs would be entirely bought by BOJ by end-2017, data compiled by Bloomberg show.
You read that correctly — the Bank of Japan will own the entire Japanese ETF market within about 30 months. So with all of the JGBs marked for purchase and with all of the ETFs exhausted, there’s only one place to go next…
Given this outlook, BOJ will probably start to purchase individual stocks that comprise JPX-Nikkei Index 400, Kazuhiko Ogata, chief economist for Japan at Credit Agricole in Tokyo, said in an interview on March 18. “Buying stocks would amplify risk-on sentiment in markets, indirectly accelerating yen weakness”; Ogata sees USD/JPY at 130 by year-end, vs 120.22 today.
While this might seem problematic from a moral hazard/sanity check prospective, there’s at least one person out there who isn’t concerned...
- KURODA: DON'T THINK STOCK MARKET OVERHEATING, OVERLY BULLISH
- KURODA: NO OVERLY BULLISH EXPECTATIONS IN ASSET MARKETS
...and while we’re not sure we agree with that assessment, here’s one point on which we do concur:
- KURODA: BOJ'S EASING HAVING ITS INTENDED EFFECTS

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When do they just cut checks for everyone?
Sorry only Billionaires apply!
List my ass in Japan real quick
Lip your stockings?
https://www.youtube.com/watch?v=lPQ6VQzuyxU
Next up: Central Bank Venture Capital. CBVC's !!!
Where they just get to make up valuations and print whatever sounds like a good number.
1) How does the BoJ exit these positions without disrupting markets? Bonds can roll off the balance sheet over time, equities don't.
2) Who votes the shares owned by the BoJ in matters of corporate governance of these companies and how is that process run?
BoJ buys all equities (or most) directly or indirectly, as it did bonds, and those "assets" just sit there, on its balance sheet, doing nothing.
There's pleny more room for them to run up their house of cards. $32 Billion USD out of Japan's $4.5 Trillion USD market is almost nothing. The ETFs will just have to get bigger is all. Technically, if the ETFs just buy more stocks and then they just buy more ETFs, it will take them 150 years at the presently expected rate of purchases for them to own the whole stock market. Or one day, if they flip a few bits in a BoJ computer somewhere of course.
Isn't this the exact same position Nick Leeson found himself in?
No, because the CB never has to close a position. Sort of like the banks now with mark to model.
Brilliant scam. Form a central bank. Create money out of thin air. Use it to buy up all assets and equities. You now own the entire country. All the peasants wil work for you and/or pay rent to you.
Karl Marx's Twisted Revenge
Yes it is a scam. It's effectively communism. But, you wake up one day and you find your currency imploded overnight.
.
What could go wrong with Fiscal Kamikaze!
place your bets..
what kills japan first
fukushima
or
Abenomics
?
Kamikaze are the speculators betting against the unlimited printer. Paging, "nickels" Bass.
Bass is hedging against the printer, not betting against it. He owns nickels. He buys them for 5 cents each and they are worth 5 cents each. If there is hyperinflation, the metals in the nickels are worth more than 5 cents. He makes a profit. With no hyperinflation, he breaks even.
LOL it all before they are done. They will have bought everything with The empty promises of digital Fiat.
And the truly hysterical part is that it still won't work. They're STILL going to go bust. But at least the BOJ will own literally EVERYTHING in the country. That's probably an important thing when you know what horrible things you're going to have to do to your own citizens shortly.
FFS!!! WHICH STOCKS!!!!!!!!!!!!!!!!!!!!!!!
All of them, probably.
Just commit hara kiri and get it over with
In order to commit honorable seppeku, first you must have honor....
Harakirinomics?
"may buy"....?!? Please, by the time the government admits anything, you know damn well it has been going on for quite some time...
They screwed things up so they are going to screw things up even more to fix them? I am truly and completely in awe of their economic prowess.....
What will tokyo look like when the lights go out?
Beijing, probably.
Dark.
MAED was a brilliant idea!
My favorite related quote (mmm...tasty – thanks ZH!):
BOJ officials used to be cautious about purchasing ETFs, worried that it could distort market activities and put the central bank’s own financial health at risk. But under pressure from politicians following the global financial crisis, the bank changed its stance in late 2010.
“We led the cows to water, but they didn’t drink it, even though we told them it tasted good,” Miyako Suda, who was a board member then, wrote in a 2014 book discussing monetary easing at that time. “So we thought we should drink it ourselves, showing them it was tasty.”
Cattle to slaughter.
Anyone still remaining who does NOT think that the Bank of Japan (and Japan's government, also) hasn't gone full retard?
Anyone?
It's really just an advanced stage of desperation, no? I mean is the U.S. not headed in exactly the same direction, with virtually no possibility of a major course correction?
Nobody who's been paying attention.
Even by the low standards of central banking the BOJ is breath-takingly incompetent, by all accounts the laughing stock of the bankster universe. It always has been. That's one reason they had a stock and housing bubble in the first place---and beat the rest of the planet to ZIRP afterwards.
Remember when we were told the Japanese would bury us becuase they were team players and worked harder than Americans did? I do. Turns out all Japan ever had going for it was workers willing to accept low wages. When Japanese workers started demanding western wages for western productivity, the globalizers cashed out and moved on to China. Japan's spent the last 25 years trying to bring the good times back, and only succeeding in pissing away what's left of their wealth on their cargo cult fiscal and monetary policy.
Oh such a convenient way for the bankers to own everything. They are buying up all the world's assets to help the economy bitchez. And then they are going to kill us.
isn't this the same as check kiting?
This is the primary problem with unlimited printing. The BoJ is able to manipulate entire segments of the global economy with zero recourse. Japan is barely 1/6th the economies of China or the United States and has a debt to GDP ratio of over twice China or the U.S.
The BoJ is clearly manipulating f/x, bond and equity markets with completely useless, worthless paper. They are doing everything they can to take advantage of tamping down risk while exporting all of their deflation to the United States. Even China sees the writing on Japan's wall, and knows full well Japan is going to crash hard.
Well, of course the BOJ will buy stocks. The Japanese branch of the PTB have to cash out too.
Japan's proletariat will the ones paying for the development of the robots who'll one day replace them, and us.
"Let me have "its all manipulated" for $2000 Alex..."
Print moooney for everyone !!!
3 years ago a friend called me crazy, when I said they will not stop until they bought everything around with intrinsic value with funny money.
Yes they can.
And its out fault, thats the painful part.
Can it get any more asinine?
YES...YES it can!
Who do you think "cleared their throat" yesterday just after the Ny. equity close? Who has the liquidity and motivation to plow the USDX down 2% in 5 minutes, then go on a 24 hour $usd buying binge?
It's not the PBoC. They're fixing usd/cny lower, so they have room to cut rates, or QE. It's not the Fed. They are concerned with the $usd gains and emerging market, export issues.
Does the SNB have the liquidity to move the market like that? Absolutely not!
+1000 thanks YenCross
*Disclaimer. I reserve the right to lie, if my thoughts are wrong. Bitchez
I still don't understand PPT's buying stocks - either they have to hold them forever and if the market ever goes down they take a massive loss
or
they have to start liquidating their holdins which causes a massive market wide route....
is there another option I'm not seeing?
When government ends up owning all the means of production, isn't that called Communism?
We are all working for the State, right? They just hold property through corporate legal entities.
Maybe that's the end-game....
It looks like the BOJ is preparing for the hyper-inflation they are in the process of causing.
They have to make sure their balance sheet contains enough assets that will not be vaporized when it comes, or that will spell "THE END" for the BOJ.
You don't understand. The stock purchases will be used to finance buybacks at high prices---financed by the firms who are buying back the stock selling their real capital or going deep into debt to do it. In the end the stocks will be worthless too.
And where one central bank goes, others are sure to follow, if they aren't already there.
Oh, they just started doing this?
Let none of us forget that one Paul Krugman is now a very serious advisor to the BoJ, too, so there's that...
Why not buy everything of value when you can print the paper to exchange for it out of thin air? Are the goyim starting to get the scam yet?
The foreign exchange market is $5.3 Trillion per day. Even at 100:1 leverage, it would take several hundred billion $usd to move the whole spectrum of the f/x market 2% like it did yesterday. I'm really surprised it's not being discussed?
That was one of the most bizarre and outsized moves I've ever seen.
When they buy stocks, I wonder who votes the proxies?
so, the plan is to pretend there is wealth creation when you are the ones buying all the assets that create this "wealth"? WHAT THE FUCK?!?!?!?!?! afterall, if the people are selling to the central printers, what the fuck is the point?
I'm going out on a limb here.
It's possible, based on that huge $usd buyback over the last 24 hours that there's a bunch of $usd longs covering their carry trades.
Sovereign & Institutional funds that borrowed in $usd are squaring up. The $usd strength is "squaring up" those trades.(buying back $usd to settle)
I fully expect the UST curve to steepen from the 10-7-5 belly down to the 2 -3 year notes. Right now the shorter term notes are way too high in yield.
"It's possible, based on that huge $usd buyback over the last 24 hours that there's a bunch of $usd longs covering their carry trades."
Yeah, I wondered about that, too. Did you notice, though, the dollar futures crashed with about a two minute lag to USDJPY as the cash markets were closing yesterday? Methinks USDJPY's crash was all about arresting oil's spike so as not to undo all the benefits of the 60% oil crash and 25% dollar rally, namely: no inflation, no need to raise rates, carry trade intact, etc.
Dollar traders (especially the algos) knowing what this usually means for stocks, didn't want to be left holding the bag overnight. If the Fed hadn't jumped in to defend the Feb lows, it could have been a lot worse.
http://pebblewriter.com/algos-gone-wild/
Tht usdx crash was about "profit taking".
I think your thesis is mostly intact. The BoJ unloaded everything during the gap between the Tokyo fixing. The spreads were unusually wide, and I thought about commenting on them. I was short aud/jpy(92.34) at the time and the spreads were 8-9 pips.
I'm so pissed... I closed that trade too early.
Maybe you'll get another chance. While the long-term rising trend is presumably pretty solid thanks to the channel from 2009, looks like the short-term might offer an opportunity down to 90.39 or - if things get really out of control - even 89.91. I see resistance from the rising channel's .146 line and the midline of a falling channel from last June. It may not be a major move, but playable.
http://pebblewriter.com/update-on-audjpy-mar-19-2015/
BOJ. if you see something....buy something. lol
Japan please buy the recently listed GBTC (Bitcoin investment fund) on OTCBB and make Bitcoin price exploding.
I will go in Japan, buy a house, take a young virgin Japanese chick, making two or more children and buy Japanese stock market with the rest of my stack and some Gold just in case...
Thanks, GSBB.
What's the point of buying single stocks rather than ETFs?
Is this a Keynesian make-work program for traders?
That avatar is hilarious.
Okay, here's the deal. ETF's are exchange traded funds. Your individual stock, based on your sarcasm isn't traded on that exchange traded fund.
I highly suggest you start studying (balance sheets & prospectus) of those penny stocks you're so interested in. JMTSW?
While I wouldn't expect better from a "chief economist" I do expect better from Zero Hedge contributors. ETF's don't have a fixed size, units/shares can be created by buying the underlying shares and "packaging" them into ETF units - not all trade is in the secondary market- eg1321.jp (a Nomura market index etf) has seen shares outstanding RISE by around 30% since mid 2013. The BoJ is buying NOW and HAS always BEEN buying individual stocks. Just once cant people think - or is this a case of why let facts get in the way of a good headline.
Speaking of plung protection I have a new law.
All stocks in a 401k must have a stop loss in place.