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It's Official: The BoJ Has Broken The Japanese Stock Market
As those who follow such things are no doubt aware, The Bank of Japan often says some very funny things about inflation expectations and monetary policy. Essentially, the bank is forced to constantly defend its QE program because as it turns out, monetizing the entirety of gross JGB issuance and amassing an equity portfolio worth just shy of $100 billion on the way to cornering the ETF market comes across as insanely irresponsible even in a world that is now defined by insanely irresponsible central banks.
Perhaps the best example of the BoJ’s absurd rhetoric came in late March when Governor Haruhiko Kuroda said the following about the bank’s 10 trillion yen equity portfolio:
- KURODA: BOJ'S ETF PURCHASES AREN'T LARGE
As we noted at the time, either we don’t know what large means, or Kuroda is simply making things up as he goes along. Meanwhile, the BoJ continues to provide Nikkei plunge protection on an almost daily basis. Here’s what we said in March:
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.
As recent gyrations in Bund, Treasury, and JGB markets have made abundantly clear, when central banks corner markets, liquidity suffers and the seeds for sudden spikes in volatility are sown. Given this, and given what we know about the BoJ’s equity buying binge, we were not surprised to learn that now, Kuroda has not only broken the JGB market but the Japanese the stock market as well. Here’s more from Nikkei:
The Bank of Japan's massive purchases of exchange-traded funds, part of its monetary easing program, could be contributing to sharp stock price swings by draining liquidity from the market…
Though the ETF-buying program had altered the balance by reducing supply, market players are noticing side effects.
Lately, "orders for some stocks have fallen, so it's gotten harder to complete trades," observed Kyoya Okazawa at BNP Paribas Securities (Japan).
Fanuc offers one example. The issue's volatility relative to the Nikkei average on a 25-day moving average basis bottomed out around spring 2013 and has been on an uptrend since. Coincidentally, the BOJ announced its unprecedented easing program in April 2013. The central bank's ETF purchases may have reduced liquidity, leading to sharper price movements.
Fanuc's 1.27% climb Tuesday was well above the Nikkei average's 0.02% increase. Its recent price movements probably have been influenced by growing momentum fueled by the company's plans to boost shareholder returns.
And here’s a bit of color which explains just how large Kuroda’s “not large” purchases are:
The bank has bought ETFs 32 times so far in 2015. This translates to about once per 2.7 days, compared with 4.3 days in 2013 before the easing began and 11.3 days in 2012 under former Gov. Masaaki Shirakawa. The average amount per purchase also roughly doubled to around 35 billion yen this year from just over 17 billion yen in 2014.
To put the BOJ's moves into perspective, if a new stock fund raised 35 billion yen, it would be the talk of the market. The central bank is making such purchases once every three days.
Finally, for those wondering whether the bank is still timing its purchases to prop up the market at the first sign of weakness, here is your answer:
The Nikkei Stock Average closed slightly higher Tuesday. Selling prevailed in the morning on weakness in U.S. and European stocks the previous day, but the benchmark index trimmed its losses in the afternoon and moved into positive territory shortly before the closing bell.
After the Nikkei average briefly dropped more than 150 points to fall below 19,500, many market players were certain the BOJ would step in. And after trading closed, the central bank said it had bought 36.1 billion yen ($297 million) in ETFs. These developments signal a growing sense of dependence on the BOJ.
There you have it. The BoJ has officially broken the stock market. The truly alarming part of Kuroda's endeavor is that the larger the BoJ's equity portfolio becomes, the more resolute the bank will need to be in terms of preventing stocks from falling because after all, you can't designate your stock portfolio as "held to maturity."
We believe the following clip does a nice job of summing up how the BoJ sees its QE program vis-a-vis other central banks:
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Where are all those sad pictures of dead drunk overworked men on trains....?
Stories like this, good though they may be, serve a more basic purpose for me. To remind me when it was, exactly, that I realized that something had seriously come off the rails and I couldn't put them back on in my mind, no matter how much cognitive dissonance I mustered.
The Fed's policies it's an easy point to remember: The launch of QE1 (It didn't have the "1" on the end of it at the time, it was just "QE", but I should have known what was to come next). That was 2009. When one (quasi) government agency starts buying the debt of another government agency to "fix" things.... I knew we were in big trouble and headed in the wrong direction. Could not then and still can not today make that leap to feeling like that would turn out OK in the end.
In Japan it was when they started buying EQUITIES by way of ETFs. Not just that it's another asset class, but the explanation of WHY. To "diversify their holdings". Wait, what? Since when is the job of a central bank to "diversify their holdings" like some kind of national hedge fund? Central banks have no such mandate and turning a profit or limiting their risk is absolutely nowhere in their charter. I won't go into details of the scary things that instantly brought to mind (gathering direct ownership in the productive assets of their nation to directly control them after the currency turns to jello), but suffice it to say, I could not summon enough cognitive dissonance to accept that as either a good policy or even a policy that was being pursued for the stated reasons.
Everywhere I look, central banks are pursuing extra-legal policies and it's important to note those things. Not because we're going to string them up by the nearest lamp post (would be nice, but will never happen), but to note the exact time, place, and circumstances where they gave overt signs of their desperation. That's when you know they knew damned well what was coming next. They TELL YOU their level of fear and when a turning point has been reached into the next phase by their policies and the increasingly contorted language they use to justify them.
The plan is to collapse all banks, markets, and currencies...
So they can force you into the digital world they monopolize...
You will pay out the nose for it too!
What happens to cash?
All gone . . . bye, bye . . . paper currency.
When all financial transactions are digital, they will have ultimate control.
Between the Central Banks buying up stock with printed money and the Corporations using commercial bank leverage to buy back shares it would seem that the entire private sector is rapidly being purchased with counterfeit money and debt leverage.
This isn't nationalization in the classic/traditional sense as the Central Banks and their attandant banking cartel members are apparently acting in their own interests directly instead of at the direction or disposition of the governmets in their respective domiciles/fiefdoms.
The conceptual definitions of money and property ownership are being hastily re-defined to some extent.
Should it be permissable for a counterfeiter to drive up prices for productive assets by aggregating them with phony currency? How is this considered good and proper activity and tolerated?
Are the few getting rich or being propped really so foolish that they cannot see where this will invevitably lead?
To borrow a line from Lili Von Shtupp in Mel Brooks' classic Blazing Saddles:
Oh, it's twue. It's twue. It's twue, it's twue!
Hilarious, haven't LOL'd at a ZH article in a while. Horrible end game, but still, entertaining description of the fail
How long until they own 51% of the market and can dictate (openly) the policy of every public company in Japan. The Yakuza will not be pleased.
The mind boggles...why didn't anyone think of this before? So simple! Just issue everyone a basket of stocks at birth and let them redeem them to the central bank at higher prices later in life. Let banks just print up and own everything!! What could go wrong?
I guess we'll find out because that's exactly what they're doing.
Worst sky-raining suicidal Japanese stockbrokers anf bankers Since Lehman™...or since its Japan....Since Rehman™
all the others CB's are doing exactly the same thing just not announcing it.
Barbarian fascism!
cash for clunker stocks. what a great scam.
Like the Fed doesn't buy massive positions in US stocks every time the market falls.
The Fed broke the US stock market before the BOJ broke Japan's. Everyone else is just following along because the .1% wants more.
The people who could buy a new Lamborghini every day for the rest of their life aren't happy with their fortunes. They have no clue what to do with their money, paying hundreds of millions for paintings that used to sell for hundreds of thousands just because they can't spend enough money any other way.
The .1% are wealth addicts. They can't stop and won't stop until we kill them.
We just destroy their phoney "wealth" creation system and they'll take care of the rest.
I'm starting to think the signal for armageddon isn't going to be a stock market crash, but when markets triple in one minute.
Please someone let me know the timing so I can get in and die rich(on paper)
Sorry, you're not in the club.
Okay, so what about all the stocks that are not part of an ETF?
Or is there an all Nippon ETF covering every single stock?
They are going to own Everything... and the World is going to let them... ( maybe )..
I really love japanese people. They dont deserve what's coming (well those born lately - rape on Nankin soldiers...)
THE PERFECT STORM (see p. 59 onwards)
The economy is a surplus energy equation, not a monetary one, and growth in output (and in the global population) since the Industrial Revolution has resulted from the harnessing of ever-greater quantities of energy. But the critical relationship between energy production and the energy cost of extraction is now deteriorating so rapidly that the economy as we have known it for more than two centuries is beginning to unravel. http://ftalphaville.ft.com/files/2013/01/Perfect-Storm-LR.pdf
breaking news : Central banks see light at the end of the tunnel.
Wait wait it is the headlight of the coming train in the tunnel.
It sounds remarkably similar to what happens in the US stock markets to me. The first sign of weakness , V shaped 'recovery'.
DavidC
With Japan as the poster child for radical central bank behavior and we, the U.S. following down the same path. Imagine how much further the US has to go. DJIA 100,000 . . . that's all that matters. What gets me is the liberal politicians have always railed aganst trickle down economics yet today, under Obama there has never been a larger gap between the rich and poor. Totally FUBAR.