The Bank Of Japan Already Owns Over Half Of All ETFs; It Wants To Own More

Tyler Durden's picture

Less than six months after we pointed out that the BoJ owns 52% of the entire Japanese ETF market, Reuters reports that the Kuroda's Peter Pan fairy tale, aka the Bank of Japan, is thinking about buying even more. The BoJ is said to be currently buying $30 billion of ETF's a year under its current policy, however since the Nikkei is down over 10% this year, that figure is apparently not enough to keep the market propped up.

Here's how the BoJ's holdings in the Japanese ETF market looked visually in recent months:


"Increasing ETF buying in huge amounts, combined with a modest increase in bond buying and an interest rate cut, could be the only way left to surprise markets," said a former BOJ executive who retains close contact with incumbent policymakers.

The reason for the BOJ's desperation shift to monopolizing the equity market next is that as we have warned since 2014, it is running out of bonds to purchase: "the BOJ's huge bond purchases are also drying up market liquidity, which further limits the scope for a large increase."

"They are crossing off a list of things that aren’t possible, and the only thing that’s left is buying ETFs," said Richard Jerram, economist at Bank of Singapore.

Japan's ETF market is just 15.8 trillion yen, of which the BOJ already holds about half, but ETFs can be easily cobbled together by brokerages, so there is scope for plenty more, given Japan's TOPIX stock market weighs in at 500 trillion yen.

Recall that the Bank of Japan's purchasing of ETF's does in fact lift the market, but questions remain around how much losses the bank will incur after the euphoria wares off, and how they can ever exit their position without collapsing prices.

"The BoJ will not easily be able to retract this liquidity in the future without destabilizing markets", said Andrew Meredith, co-managing director at Tyton Capital Advisors

What "retraction"? The BOJ will never be able to "retract" as at this point this is the all in gamble; Kuroda knows very well that should the Nikkei drop a few more percent, he and Abe are out. Even the BOJ itself realizes this:

There are doubts raised within the BOJ, too, but those voices are in retreat as Kuroda stretches the limits of monetary policy, and dissenters to his radical money-printing policies are being replaced by supporters, the sources say.


"I don't think worries about an exit are high on the list of the BOJ's priorities," said another source familiar with the BOJ's thinking.

Worse, increasingly every BOJ proposal is being seen as a joke by even the "serious" members of the analyst community.

Jerram at Bank of Singapore said he was not convinced buying ETFs would help much with the BOJ's principal goals, however, as there wasn't a clear transmission into economic performance.


"They do something for the sake of doing something, and people see through that pretty quickly," he said.

With the only tangible success of NIRP being that the BoJ has broken the money market, it will now embark on a journey to push on the string from the other direction, ultimately from the boardroom.

As we said back in October, "buying individual issues would allow the BoJ to effectively control corporate management teams on the way to dictating decisions about wage hikes and capex. In other words, when Abenomics fails, the BoJ will simply take over the boardroom and mandate higher pay in an effort to fix this."

Which brings up another question: why is it that central banks have no qualms about reporting their purchases f ETFs but, with the exception of the SNB, are yet when it comes to purchases of single name stocks (or, gasp, crude oil) during key inflection points, it is still considered a taboo? After all, there are no markets left that are isolated from central bank intervention anymore.

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buzzsaw99's picture

exit, lulz.

"The way is shut. It was made by those who are Dead, and the Dead keep it... [/King of the Dead]

Vampyroteuthis infernalis's picture

When the banks want to exit, who will be the buyers? The gubbermint? Ha ha ha

buzzsaw99's picture

meh, they will mark that shit to fantasy and take huge bonuses.

XAU XAG's picture

, "but ETFs can be easily cobbled together by brokerages,"






Theonewhoknows's picture
Theonewhoknows (not verified) XAU XAG Apr 15, 2016 8:55 AM

They will print even more. To cover their debt, to cover another bubble, to cover the national debt. Problem with this inflationary escape of debt - idea that through increased money supply (gov spending) you can have inflation bigger than your interest rates accrue on your debt - is that you are TAXING everyone with savings through destruction of money. What is more - if you could have some sort of a guarantee that whatever government spends money WILL WORK - you don't have it. If it is a failure, it is huge and I mean bigger than 2008. Now we have many examples of such risks - Auto loan bubble, student loan bubble, S&P bubble not to mention bankrupted governments that can go to war not to pay the debt... 

this is called war on cash. We see it in front of our eyes and it will be bad.

Stox's picture

Socialism by means of capitalism.

Socialism meaning ... government ownership of the means of production.

buzzsaw99's picture

the only thing they own is a bunch of maggot stock options.

Janet Shalom Bernanke's picture

Kuroda says that he has a lot of tools still left to use on the people.

They already play with themselves in the bond market, may as well 100% play with himself in the stock market too.

Is capital punishment legal in Japan?  Kuroda deserves the punishment that the people of Japan will give him once he collapses their economy.   


Stox's picture

I am left wondering what percentage of Japan's equities this represents.  No clue on what percentage is contained within their ETF's

Grandad Grumps's picture

So, the bank of Japan is supporting bank fraud and price fixing? Isn't that what central banks were set up to do? I don't mean what they told the politicians and people what their "mission" is, but what they were REALLY designed to do.

... and that is why they are, in practice, private institutions that are immune from prosecution for their crimes against the entire "human" race.

TradingIsLifeBrah's picture
TradingIsLifeBrah (not verified) Apr 15, 2016 8:04 AM

One way they could get out of the positions is to do like Hedge Funds and do a "redeem-in-kind" payment method.  If they have tax refunds they could be paid in ETF shares instead of money, being the government they could even require people hold the shares for a certain period of time so that the shares don't all hit the market at once.  Likewise government employees could be paid partially in ETF shares over time to get rid of the balances.  I'm sure everyone will be glad to participate in the Equity markets where everyone makes the "big money".

bada boom's picture

What's their motto, keep buying until it works?

Luckhasit's picture

if they are buying, who the fuck is selling? who owns the assests the boj is hovering up? 

Huh Reeeally's picture

That's what I'm wondering, maybe the BOJ? On the other hand, if the BOJ is buying ETFs then maybe it's worth holding the individual companies that make-up those ETFs, you know, like boarding the Titanic after it hit the iceberg, a bit of a bad idea.

Lady Jessica's picture

What happens if they want/need to sell them?

Rainman's picture

Dog chases down the car on the roadway, then doesn't know what to do when he catches it.

City_Of_Champyinz's picture

No buyers, underlying asset values plummet...Shit hits fan and sprays everyone down.

101 years and counting's picture

CB's love buying the assets of the wealthy, at obscene levels.  when they take the losses, the peasants get to pay for that with higher taxes and artificial "inflation".

curbyourrisk's picture

And this is why ETF's were created.  Manipulation du'jour




venturen's picture

who is their adviser, Goldman?

juggalo1's picture

This is ridiculous.  Why do they think that buying bonds and stocks will do better at igniting inflation as opposed to just helicopter dropping the money?  Sometimes the simplest solution is the best.  Just give them a Bush-style tax cut, and stop talking about consumption tax / VAT tax increase.  Why would you raise taxes (deflationary) while quantitative easing?  How is that any different from snatching money from workers and consumers and handing it directly to investors and CEOs?

Dr.Engineer's picture

This is painting onself into a multi-dimensional corner.  The answer is that there is no markets after this and there will be no capitalism.   The key issue is that Japan doesn't have resources so they need to buy them.  The value of their currency depends on what the external parties think it is.  That value will diminish at some point when people think the currency risk is much higher than the potential return -- this is not far off.  There are other external markets and it seems that it is the preprogrammed algos that are holding this together but that programming can change at any time.  This is very dangerous.  Abe an his merry band are arrogant fools.

InsanityIsWinning's picture

Take a good look ladies and gents . . . this is where it's headed for the world.

GreatUncle's picture

Lol if those ETF's are the malinvestment you got a good claim to fame there if you own over half.

No way back because all financial stimulus has to hold the malinvestment up and generate new trade so the new trade just gets a smaller and smaller share.

r3phl0x's picture

Yup. Printing a paper claim to buy a paper claim on a paper claim priced in the first paper claim. Full-on bukakke circle jerk.

modo's picture

These are good levels. They should do well from these purchases.

conraddobler's picture

We woke up communists.


Jethro  "Well Uncle Jed, yuns see It all started out cause we was just buyin some etfs to keep them stawks up see."  "First thing yer know we done owned all them stawks then we ciphered that, well hey why not just buy the rest of everthing and fix all them there problems once and fer all?!."

Uncle Jed "Some day I'm gonna have have to have a long talk with that boy!"

oncemore's picture

I have a print press, I would do the same, as BOJ. WHich one of you expects me to do otherwise? ?