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Bank Of Japan's 10 Trillion Equity Portfolio "Not Large" Says Bank Of Japan
As we’ve discussed twice this month, the world has now officially given up any pretensions that Japan’s elephantine QE program isn’t underwriting the rally in Japanese stocks. Not only is the Bank of Japan buying ETFs, they’re targeting their purchases to (literally) ensure that stocks can’t fall by stepping in when things look weak at the open. Unfortunately, Kuroda looks set to run up against the extremely inconvenient fact that while, in his lunacy, he can print a theoretically unlimited amount of money, the universe of purchasable ETFs is limited and so eventually, the BoJ will own the entire market. Here’s what we said last week:
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: individual stocks.
So with the plunge protection knob cranked to 11, and with the BoJ looking to prove that its central bank insanity setting can be upped to an unprecedented 12 if necessary, we bring you the following from Nikkei:
The Bank of Japan is emerging as the nation's second-largest stock investor, with its portfolio topping 10 trillion yen ($82.7 billion) in market value this month…
The central bank's portfolio has a book value of around 5.7 trillion yen. But soaring share prices have lifted its market value past the 10 trillion yen mark -- nearly 2% of the tally for all Tokyo Stock Exchange shares.
The figure makes the BOJ second only to the Government Pension Investment Fund, whose portfolio boasted a market value of 27 trillion yen as of December's end.
Although the central bank does not disclose details of share-buying operations, it frequently steps into the market and buys 30 billion yen to 40 billion yen worth of stocks when equity prices falter in the morning. Its purchases Tuesday reached 35.2 billion yen, underpinning a market that showed signs of a morning struggle. The bank has carried out 20 such operations so far this year.
So after buying 35 billion yen worth of shares yesterday, the BoJ now owns 2% of the entire market and looks set to square off against GPIF (which, as we noted last week, is set to move aggressively into stocks at the implicit urging of the BoJ and the explicit urging of PM Abe) in a battle to become the single largest holder of Japanese equities. Here’s more:
The stock portfolio's impact on the BOJ's financial health can no longer be ignored.
The bank's net worth is 2.8 trillion yen, while its stock portfolio is worth twice that in book value, or 250% more in market value. Japanese megabank Mitsubishi UFJ Financial Group has a net worth of 14 trillion yen, with its stock portfolio amounting to only 5 trillion yen in market value.
The central bank must book losses when stock prices suffer extraordinarily sharp drops, since its financial health could hurt confidence in the Japanese currency.
In other words: the BoJ has no choice but to support the market because if stocks fall, the central bank itself will be in jeopardy. Fortunately, there are still shares out there that the BoJ doesn’t yet own:
"There is ample room for us to buy more shares, but we must keep a vigilant eye on price fluctuation risk," a senior BOJ official says.
While all of this may sound unequivocally insane, the problem, it turns out, is that just as we can’t understand how Snapchat is worth more than Clorox because we don’t understand the meaning of the term “valuation,” the reason we think the BoJ has been buying a large amount of stock is because we don’t understand the meaning of the term “large.” Here’s BoJ governor Kuroda to explain:
- KURODA: BOJ'S ETF PURCHASES AREN'T LARGE
Well that solves that. And what about the idea that these smallish purchases are supporting the market?
- KURODA: STOCKS AREN'T BEING LIFTED BY BOJ'S ETF PURCHASES
So buying stocks doesn’t lift stock prices. Got it. If you want a second opinion, you can also ask FinMin Taro Aso:
- ASO: BOJ'S BOND BUYS NOT AIMED AT BOOSTING STOCK PRICES
- ASO: MANAGEMENT OF PENSION FUNDS ALSO NOT AIMED AT STOCK PRICES
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It's not large, it's barely enormous.
It's almost a Godzillion!
"One Million Dollarss"
What Kuroda means by large is what they'll be putting in over the next two years.
Other Tylers, please slap this Tyler back to his/her senses. ETFs can be created/broken at will by buying/selling the basket of underlying stocks. Total ETF share count is only constrained by the number of ordinary shares which can be bought and turned into ETFs. Theoretically speaking, as you see in a lot of crappy momo companies in the US, you could have more ETFs than the underlying market would allow if there is a significant interest in shorting the ETF and/or its constituent parts.
This is not a defense of the monetization of equity shares (a practice I am repulsed by), it is rather a call to be precise in the language/analysis of financial happenings.
Hey asshole!! What's it worth when you try and sell.
Dear Buster,
It seems your talents are best suited to the sod. You should focus your energies there and avoid ejaculating off-subject noise into situations you obviously know nothing about.
Regards,
Alphamentalst
PS- ETFs can be redeemed at will for the basket of their constituent stocks (of course if a unit of the basket is worth $100k you need to own--even you can guess this one--$100k of the ETF). Those stocks can then be sold for whatever prices they are trading at. So, in short, they are worth the value of the sum of their parts. The BoJ's actions--distasteful as they are--simply manipulate the price above where it would otherwise trade. So, as a "seller" you should be happy as hell they will pay you more than you would be able to get otherwise. It is the buyers (call them people under the age of 50) who are getting screwed on this trade, as they are the ones who must pay inflated prices.
Did you read the article at all? The article says anyway, that buying ETFs is lifting stop prices.
Holy hell, ZH has become completely choked with incompotents! Did you read the article? Excerpt:
http://www.zerohedge.com/sites/all/modules/blockquote/images/menu-leaf.g...); background-position: 100% 100%;">"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: individual stocks. "
So, again, you can not exhaust an ETF market. The ETF dealers will make as many as you want to buy and can continue doing that until there are no ordinary shares available for sale (as in that scary moment when the BoJ owns it all). So the issue is not the "exhaustion" of the ETF market but how much of the total market cap on of the underlyings they can buy (indirectly, through ETFs, of course).
"I can take my finger out of this hole in the dike any time I feel like it." he said standing there hollow eyed as the sun went down...
I can't wait until this whole shit avalanch collapses. Shouldn't be to far away.
Konichiwa Bitches!!!! (you guys are Fucked... sorry)
Insanity reigns....it seems...large, small, its all relative when it comes to government work. Self preservation is the key for those fuckers. ALL of them. Good luck you gov lackeys when the tide goes out because the oracle has shared that we will then see you have no bathing suit on.
Put that missing fuck-u-shima nuclear fuel rod in his mouth .
A governmemt who has the ability to tax, knowledge of inside information , manipulate interest rates and print money is allowed to gamble the peoples money in the stock market? I see no conflict of interest there.
Let the free market reign!
The only thing the Nips ever did right was the Toyota FJ-40 Landcruiser...and not that new tonka toy version either.
The pre-86 4x4 pickups are also worth owning.
The situation is desperate, but NOT serious!
Is Kuroda trying to say "size doesn't matter, it's how you use it."
Or, maybe he is trying to say, "my dick is so hard that I could hammer nails, but it's not because I took a double dose of Viagra..."
LOLLLLL!!!
All those physical money, where is it going to? Who gets the real cash?
Someone owns those ETF atm, BOJ is buying them so the one who owns them atm gets cash.
USA did QE, all those cash went to banks and on government spendings from bonds sellings and to pey back interest on bonds. Someone gets cash.
Countries don't print physical cash, but finally someone did get all the cash "digitaly created". There is no inflation, so where is the cash?
Don't tell me on bonds since bonds is just a mean to get real cash to spend it on whatever ppl wants, higher saleries, better medical care etc. so cash goes to real ppl or to companies and banks, and where does the money ends? Who owns all the cash printed? Not normal folks, since most ppl don't have any savings and live from salery to salery. Banks just keep on hording cash? Lots of cash on it's accounts without investing? That's unreal. WHERE IS THE MONEY?!
I though Nigel Tufnall was already a Federal Reserve Governor. He has all the qualifications.
i want to see the BoJ porfolio for Europe and North America. Every morning about 90 minutes before U.S. equity markets open there's usually a huge surge in $usd buying. Who's proxying those buys for the BoJ?
The BoJ and Japan are completely out of control... A run away train<<< Their money printing antics are jeopardizing the entire global economy. The BoJ, Kuroda & Abe make the Fed. look like PIKERS.
Something is sure being manipulated with the JPY. Well known gusher of JPY monetization and JPY gets stronger? Where the heck is the new supply being stored to keep it from weighing on the market?
They are buying equities with money that doesn't exist! These people, not excluding the Fed need to be exterminated to preserve what is left of our collective financial credibility and sanity. / no sarc
Pile on those shares.
Their buying with money created from air, your selling shares created from thin air.
Look at the Japanese investment in foreign equities, then look at the dropoff from foreign investments in Japanese equities. I don't trade the Nikkei, but I just might short some sector Nikkei ETF's next week.
JPY Foreign Bonds Buying 765.5B 551.0B
JPY Foreign Investments in Japanese Stocks -352.8B 244.3B
Market makers should be issuing new shares like crazy. You have a guaranteed buyer.
probably eating the fukishima seafood too.
Hey Kurodasan...Put away the SAKI dude....
These are not the droids you are looking for (waving his hand forward)
So you're saying that I can buy my debt with my neighbors money and sell it to my other naihgbor with a profit to pay my debt off? Fucking genius!
Japan is where the US is going, or in some cases, already there.
NIKKEI C.1990 = 40,000
NIKKEI C.2015 = 20,000
"Nuff Said".