In Shocking Finding, The Bank Of Japan Is Now A Top 10 Holder In 90% Of Japanese Stocks

Tyler Durden's picture

The latest shocking example of just how intertwined central banks have become in not only Treasury and corporate bond markets and their respective "valuations", but also in stocks, comes courtesy of the Bank of Japan which days ahead of an announcement which may see it double its ETF purchases from the current JPY3.3 trillion to JPY7 trillion or more (if Goldman is correct) has just been revealed to be a top 10 holder in about 90% of all Japanese stocks!

As Bloomberg puts it, "they may not realize it yet, but Japan Inc.’s executives are increasingly working for a shareholder unlike any other: the nation’s money-printing central bank."

While the Bank of Japan’s name is nowhere to be found in regulatory filings on major stock investors, the monetary authority’s exchange-traded fund purchases have made it a top 10 shareholder in about 90 percent of the Nikkei 225 Stock Average, according to estimates compiled by Bloomberg from public data. It’s now a major owner of more Japanese blue-chips than both BlackRock Inc., the world’s largest money manager, and Vanguard Group, which oversees more than $3 trillion.

 

Under the BOJ’s current stimulus plan, the central bank buys about 3 trillion yen ($27.2 billion) of ETFs every year. While policy makers don’t disclose how those holdings translate into stakes of individual companies, estimates can be gleaned from publicly available central bank records, regulatory filings by companies and ETF managers, and statistics from the Investment Trusts Association of Japan. The BOJ declined to comment on Bloomberg’s findings.

The stunning chart showing just how deeply involved in the "fair value" of the Nikkei is shown below: it needs no explanation.

 

As Bloomberg adds, the estimates "reveal a presence in Japan’s top firms that’s rivaled by few others, with the BOJ ranking as a top 10 holder in more than 200 of the Nikkei gauge’s 225 companies. The central bank effectively controls about 9 percent of Fast Retailing Co., the operator of Uniqlo stores, and nearly 5 percent of soy sauce maker Kikkoman Corp. It has an estimated shareholder rank of No. 3 in both Yamaha Corp., one of the world’s largest makers of musical instruments, and Daiwa House Industry Co., Japan’s biggest homebuilder."

The news follows the well-known recent disclosure that the BOJ is already an owner of more than half of all Japanese ETFs.

 

What many had forgotten is that by directly buying and holdings ETFs, the BOJ also becomes a holder of the underlying stocks. It was just unclear to what extent.

Now we know.

But that's just the start. If the BOJ accelerates its ETF purchases this week to an annual rate of 7 trillion yen, as Goldman predicted last week, the central bank could become the No. 1 shareholder in about 40 of the Nikkei 225’s companies by the end of 2017, according to Bloomberg calculations that assume other major stakeholders keep their positions unchanged. It could hold the top ranking in about 90 firms using HSBC Holdings Plc’s estimate of 13 trillion yen.

This is simply unprecedented, and confirms that some time over the next several years, the Bank of Japan will not only own a majority of the Japanese bond market, but will be the outright owner of virtually all Japanese stocks!

Furthermore, recall what we have been saying ever since 2010, namely that central banks are nothing more than glorified risk-free hedge funds (because they can always print more funds if they need them)? Well, back then it was another conspiracy theory. Now it is an accepted fact: "When you see the numbers, you see it’s quite a decent holding,” said Nader Naeimi, the Sydney-based head of dynamic markets at AMP Capital Investors Ltd., which oversees about $120 billion. “Central banks are becoming big hedge funds."

But the most farcical is the defense by the BOJ's head whose only mission has now been exposed as one of propping up the Japanese stock market: while the BOJ’s ETF buying has come under fire from opposition lawmakers, Governor Haruhiko Kuroda has repeatedly defended the program, saying as recently as last week the purchases aren’t big relative to the size of Japan’s stock market.

With this new data he may want to reconsider: at an estimated 8.6 trillion yen as of March, the BOJ’s holdings amount to about 1.6 percent of the total capitalization of all companies listed in Japan. That compares with about 5 percent held by the nation’s Government Pension Investment Fund. The central bank’s use of large-cap ETFs means its positions are concentrated, with less impact on the thousands of Japanese companies outside benchmark indexes.

That said, the BOJ is not alone. The U.S. government spent $245 billion to prop up banks during the global financial crisis in 2008, earning a profit of about $30 billion on their investments as the industry recovered. At the height of the Asian Financial Crisis in August 1998, Hong Kong bought HK$118 billion ($15.2 billion) of local shares to defend its currency peg, helping to fuel a rally that allowed it to dispose of the entire stake within five years.

The only difference is that in the US, the Fed is leery of disclosing just how it manipulates equities (via Citadel, at key downward inflection points). In Japan, it has been well-known for nearly a decade that the BOJ buys equities via ETFs and REITs outright.

This is not only troubling but dangerous: the longer the BOJ’s buying persists, the bigger the risk that market prices will detach from fundamentals. Assuming Goldman Sachs’s prediction for more stimulus proves correct, the BOJ could end up owning a quarter of Mitsumi Electric Co., a supplier to Apple Inc., and 21 percent of Fast Retailing by the end of 2017, estimates compiled by Bloomberg show

Then there is the question of corporate governance, something hedge fund activists such as Dan Loeb have been railing against for years:

With such large stakes sitting in index-tracking ETFs that lack a mandate to scrutinize company performance, the BOJ’s intervention could also hamper attempts to improve Japan’s corporate governance, according to Nicholas Benes, representative director of the Board Director Training Institute of Japan.

The central bank said in December that it plans to buy additional ETFs that weigh holdings based on metrics that include research spending and employee wage growth, but the BOJ hasn’t started those purchases yet because the funds don’t exist.

As Bloomberg adds, while bulls have cheered the BOJ’s efforts to lift share prices, the central bank is bound to reverse its intervention at some point, a potential source of instability that Sumitomo Mitsui Trust Bank Ltd. says is increasingly on the minds of long-term investors. "Of course, you can argue that we’re in abnormal times so we have abnormal measures,” said Ayako Sera, a Tokyo-based market strategist at Sumitomo Mitsui. “The biggest question in the future will be: What happens when the BOJ exits?

What exit? As Goldman said in its latest note yesterday predicting that Japan may unveil helicopter money as soon as this week, it said the BOJ simply has no exit any more, and will continue buying risk assets at an ever faster pace until it all comes crashing down.

The implications of a creeping central bank owner are widespread: "to critics already wary of the central bank’s outsized impact on the Japanese bond market, the BOJ’s growing influence in stocks risks distorting valuations and undermining efforts to improve corporate governance. Proponents, meanwhile, say the purchases provide a much-needed boost to investor confidence."

Which at its core, is all central banking is about: preserving confidence, and intervening to make sure stocks don't crash. This until several years ago was "conspiracy theory." It is now conspiracy fact."

"For those who want shares to go up at any cost, it’s absolutely fantastic that the BOJ is buying so much,” said Shingo Ide, chief equity strategist at NLI Research Institute in Tokyo. “But this is clearly distorting the sanity of the stock market.

At some point, this charade has to end. There will be no more monetizable assets and unless the government intends to simply issue one liability (a bond) and buy it with another liability that they also print (fiat money) for the sheer sake of keeping the ponzi scheme alive (i.e. issuing debt for the sole purpose of perpetuating QE), "failed state" status is right around the corner. 

We close with two quotes and one searing image.

Paul Krugman: "Why does the tide finally seem to be turning? Partly, I think, it’s just a matter of time; after six years it’s becoming hard not to notice that the anti-Keynesians have been wrong about everything. And the refusal of almost everyone on the anti-Keynesian side to admit any kind of error has gradually made them look ridiculous."

 

Haruhiko Kuroda: "I trust that many of you are familiar with the story of Peter Pan, in which it says, 'the moment you doubt whether you can fly, you cease forever to be able to do it.' Yes, what we need is a positive attitude and conviction."

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JamaicaJim's picture

Bonsai motherfuckers!!!!

highly debtful's picture

Shouldn't that be "banzai"? 

philipat's picture

Unless he is a tree hugger?

 

philipat's picture

The real question here becomes, when all the Western Central Banks own ALL of the "markets", what happens then?

Perimetr's picture

The banksters want to own everything?

I'm shocked, shocked.

philipat's picture

Yes, but is the end result Communism or Fascism?

tc06rtw's picture

   
 …  “Shocking”  to whom?
   
If an institution is purchasing equities without end,  eventually it will become the complete owner.

Tall Tom's picture

But that's just the start. If the BOJ accelerates its ETF purchases this week to an annual rate of 7 trillion yen, as Goldman predicted last weekthe central bank could become the No. 1 shareholder in about 40 of the Nikkei 225’s companies by the end of 2017, according to Bloomberg calculations that assume other major stakeholders keep their positions unchanged. It could hold the top ranking in about 90 firms using HSBC Holdings Plc’s estimate of 13 trillion yen.

 

And this is the method on how you take a Capitalist powerhouse and transform it into a Communist state without firing a shot.

 

All business will be State Owned. The Bank of Japan is a Japanese Government institution, not private, as our Federal Reserve.

E.Shackle.Ton's picture

It is partly privately owned, hence the ticker  8301:JP

Rip van Wrinkle's picture

What's the difference? Communism is fascism with a marketing budget.

philipat's picture

I would have thought that communism is fascism WITHOUT a marketing budget??

Of course, they BOTH have enormous propoganda budgets...

Tall Tom's picture

Yes, but is the end result Communism or Fascism?

 

 

 

Does the end result matter that much? It is very,very sad.

 

But technically it is fucking Communism

 

Fascism happens when the Large Businesses own the Government and dictate to the Government.

 

Communism happens when Government owns the businesses and dictate their demands..

philipat's picture

The political continuum is a circle, and at the extremes they meet at the other side of the circle.

 

Ghordius's picture

wrong. Fascism is when government dictates what Large Business have to do "for the greater glory of the nation"

while also dictating to the labour trade unions what price they have to accept. and the whole with a gun pointed

look, it's fine to go after this exceptional US meme that there is only (classic) Liberalism and Socialism

but fascists... hated both. Mussolini did. Franco did. Hitler did. the Vichy gov of France did, and a dozen others

perhaps many here cannot conceive a government dictating Big Biz anything, but those dictators did, and some of the cheers they got was because they were seen doing it. it did not mean that Big Biz was disbanded, note. but it was dictated upon

fascism is, whatever some whacky theorists say, born out of conservatives.... being utterly fed up by both socialists and (classic) liberals, the "lumpenproletariat" and the "fat cats"

Lady Jessica's picture

Great comment, Ghordius.  Thanks.

back to basics's picture

It's a bullshit comment soaked in ignorance.

Fascists use the power of the state (legislative, police and army) to enrich the connected elite while impoverishing the masses at gunpoint. Period.

Study the Pinochet fascist regime in Chile that's not clouded by war before posting abstract shit like that.

Ghordius's picture

emperor Vespasian spearheaded the method: enrich the publicans... and then squeeze them. rince and repeat. he called them his... sponges

sure, a dictator might enrich the connected elite. but that's not the same as favouring Big Biz

as a reminder, Big Biz isn't only shareholders. it's the management, too. those with multi-million bonuses, you know?

an owner does not get a bonus

was Pinochet a classic fascist? could not say, I have not studied Chile enough

I prefer to take anyway the examples from here, where we experienced the most classic fascism, anyway

so no, I disagree with you. care to pick an example? Italy's and Germany's relationship with their national MICs would be my favourite

again, imho you seem to disbelieve the utter power that a charismatic leader can have, versus the entrenched interests of oligarchy

in short, imho you seem to disbelieve... the dictatorship of one person, or the dictatorship of the state over the economy

mvsjcl's picture

"...an owner does not get a bonus..."  

 

An owner cares not a fart about receiving a bonus. An owner craves power and control. 

Ghordius's picture

is there even one word in the whole freaking English vocabulary that can't and won't be misunderstood?

owner in the sense of stock owner, proprietary of property, owning things

ZD1's picture

 

 

Communists abuse the power of the state (legislative, police and army) to enrich the connected elite while impoverishing the masses at gunpoint.

Stalin, Mao, Pol Pot, Castro, etc. are all examples.

 

Chile's current president is a leftist hag named Michelle Bachelet who is a Hillary clone and is just as corrupt.

 

http://www.theguardian.com/world/2015/apr/08/chilean-president-michelle-...

http://www.nytimes.com/2016/01/30/world/americas/daughter-in-law-of-chil...

http://www.ibtimes.com/chiles-president-michelle-bachelet-approval-sinks...

illyia's picture

So, the likelihood is that Japan will go fascist to force its economy to stay alive...

Hmmm...

And, us? It looks like we're trying...

froze25's picture

Fascism is just the beginning stage of Communism. Fascism is Gov't directed control of private business, Communism takes out that middle man (the private part) and take direct ownership both are Leftist policies.

_ConanTheLibertarian_'s picture

Next, they can only trade stocks with themselves. Brilliant!

/s

Debugas's picture

Q: when all the Western Central Banks own ALL of the "markets", what happens then?

A: they will start asking themselves why do they need to produce all the goods and soon realize it is better to mothball all those assets and produce just enough for themselves and noone else

nmewn's picture

Well, as we commented years ago on this Keynesian central planning model, we will soon be able to prove beyond any shadow of a doubt that taxation is a control mechanism...not a revenue mechanism  ;-)

Ghordius's picture

step after step

first, they buy up their domestic markets. note here that China was buying Japanese sovereign bonds, and the Japanese replied "hands off our debt!"

second, they start to wrangle about non-domestic markets

the whole first point of this financial quasi-war is control... of the domestic financial systems first

the whole second point of this financial quasi-war is... what to do about the USD. which would become moot if the FED raises rates

as long the FED can't or won't... NIRP seems to be the answer from a quarter of the world. a deceptive, non-intuitive policy, mind

Lady Jessica's picture

"as long the FED can't or won't"

But what if the FED must raise rates (i.e no choice in the matter)?

Ghordius's picture

the big question here is... for domestic or foreign reasons?

fact is that Dollar-ZIRP has made a whole lot of the world, particularly "Emerging Markets", to borrow boatloads of new credit in usd

whenever the dollar got "stronger", you could hear NY bankers squealing about their debtors being strangled, and supportive choking sounds from them

(not only in NY, but there is the biggest new "exposure")

that's "the issue with the dollar" since Bretton Woods. who's currency is it? who's problem? Nixon had one "solution" (and woke up the sleeping Dragon)

rates are, after all, the price for credit. after supply met demand. that's why I write that NIRP is strongly misunderstood, and deceptive. NIRP would not be possible, if there wasn't a monetary hegemony of the dollar there in the first place

Lady Jessica's picture

"NIRP would not be possible, if there wasn't a monetary hegemony of the dollar there in the first place"

Would you mind clarifying this, Ghordius?

MidwestJester's picture

Who, pray tell, is going to force the Fed to raise rates?!? This article clearly shows that the Central Banks are 'the market' at this point, or will be soon. So obviously 'the market' isn't going to force their hand. Other investors, sorry Central Banks, aren't going to force their hand either, cause they're all playing the same game. 

Tarzan's picture

The deception is in the source of inflated valuations - confidence, Faith in a Ponzi scheme called FIAT

the longer the BOJ’s buying persists, the bigger the risk that market prices will detach from fundamentals.

We risk, what is already a reality?  News flash, Fundamentals left the building, a long time ago!

"Of course, you can argue that we’re in abnormal times so we have abnormal measures,”

 

the BOJ’s growing influence in stocks risks distorting valuations

 

But this is clearly distorting the sanity of the stock market.

 

whose only mission has now been exposed as one of propping up the Japanese stock market

 

preserving confidence, and intervening to make sure stocks don't crash

 

 

The biggest question in the future will be: What happens when the BOJ exits?

 

 

At some point, this charade has to end

 

It's like the Captain of the Titanic getting on the horn as the ship is half sunk and informing the People the ship is in risk of sinking if they adorn flotation devices, if they abandon hope, you must believe the ship will float.....

How do Ponzis Die?  Have any ever successfully wound down?

I don't think so.  They all crash when the top outweighs the bottom, when they loose support of the base, when FAITH stops providing sufficient liquidity!

the BOJ simply has no exit any more, and will continue buying risk assets at an ever faster pace until it all comes crashing down.

Until confidence comes crashing down! 

It's a twisted Godless world, where Bankers depend on your confidence in the "Markets"

a world that belittles Faith as trust in fables, while clinging to faith in Oligarchs...

Money Counterfeiter's picture

Japan is some communist Mf'ers.  lol  The Zio virus spreads to Japan. 

tc06rtw's picture

   
 …  Remember 1987,  when they were taking over the world?

illyia's picture

Or earlier - 'I think I'm turning Japanese'

TwoHoot's picture

Then we will know the answer to the great cosmic question:

If everyone works for the government, will taxes cover payroll?

Farqued Up's picture

Then we all go Kiretsu? Is that the right term when everybody owns a piece of everybody, sort of like incest?

TheReplacement's picture

Been saying it for about a year or so.  They are gonna try to buy everything.  Once the banks own it all they can be crashed and rolled up into an international super state/bank/plantation owner style NWO.

thetruthhurts's picture

The model the USA is following.....should give the bankers and extra 10 years of zombie economy boom.

Bill of Rights's picture

The day of reckoning for Japan  is near...fact is another Tsunami or earthquake will pretty much nail the coffin shut for Japan...

Yes We Can. But Lets Not.'s picture

from what I read, it is coastal Oregon and Washington that are overdue for the largest natural catastrophe in US history, not California.

conraddobler's picture

You know everyone acts like this is just horrible incompetence it could also be a take over of everything masked as that.

Just saying.

TwoJacks's picture

They will increasingly find themselves with the ability to pressure the board of directors of all those companies to scale back executive pay, or perhaps they should do that with all of their newly purchased leverage.  With all of the high speed turnover of shares since electronic trading became popular, BoD's have continued to escalate their salaries and shareholder pressure to do otherwise has been lacking.  It will take a long time for this to play out, and I'm certain that we dont want governments to have that much say in day-to-day business operations, but we are talking about a semi-free market and those shares are for sale every day

css1971's picture

Executive pay in Japan isn't as high as the US. Typical Japanese CEO earns about 16 times the average pay.

TradingIsLifeBrah's picture

The Fed is top 3 for US stocks but they don't have to reveal their positions

ebworthen's picture

Sure, government ownership, then when things go belly-up, who pays?

The kids, the retirees, the everyday working class normal people - you know, the "little people".

philipat's picture

And that day is upon us. We are fucked and TPTB are preparing...

BandGap's picture

When the rest of the world starts puking dollars then the fun times begin. Belly up would be a nice way of putting things.