The Bank of Japan Will Be The Top Shareholder Of 55 Companies By The End Of 2017

Tyler Durden's picture

In the aftermath of the BOJ's announcement that it would almost double its ETF purchases to ¥6 trillion, or $58 billion, up from the current ¥3.3 trillion, we put this number in context. Over the next year, BoJ is scheduled to purchase ¥6t ($58b) in ETFs, and $116b over the next two years.  By June of 2018, BoJ is likely to hold ¥20.5t ($200b) in ETFs.

Three ways to put BoJ's purchases in perspective:

  • The US market cap is 5x Japan’s, so this new stimulus can be viewed as equivalent of the Fed purchasing $580b in ETFs over the next two years, and the Fed holding $1t in ETFs.  Of course, this is just a hypothetical exercise as the Fed is prohibited from purchasing equities.  But the new stimulus illustrates that BoJ is concerned with the severity of bearishness in Japan's equity market, and that such drastic purchases are necessary to reverse the bearishness.
  • In Oct 2014, Government Pension Investment Fund announced a new asset allocation of its ¥127t assets. Among other changes, its domestic equity allocation increased from 17% to 25%, or an increase of +¥10t.  So BoJ's ETF purchases over the next two years and GPIF's equity purchases may be in the same ballpark.
  • So far this year, foreign investors have sold almost ¥5t in net of Japanese equities.  That's smaller than BoJ's annual purchase rate of ¥6t.

While dramatic, some additional facts courtesy of Bloomberg should convey just how truly unprecedented the move truly is: with the BOJ already a top-five owner of 81 companies in Japan’s Nikkei 225 Stock Average, the BOJ is on course to become the No. 1 shareholder in 55 of those firms by the end of next year, according to estimates compiled by Bloomberg from the central bank’s exchange-traded fund holdings.

Just as insane, the central bank owned about 60% of Japan’s domestic ETFs at the end of June. This is up from just over half as of a few months ago suggesting that the BOJ is gobbling up equities at an unprecedented pace.

At this point the usual debate begins: is central bank intervention good (of course, the bulls say) or bad (everyone else grudgingly admits). While bulls have cheered the tailwind from BOJ purchases, opponents say the central bank is artificially inflating equity valuations and undercutting efforts to make public companies more efficient. Traders worry that the monetary authority’s outsized presence will make some shares harder to buy and sell, a phenomenon that led to convulsions in Japan’s government bond market this year.

“Only in Japan does the central bank show its face in the stock market this much,” said Masahiro Ichikawa, a Tokyo-based senior strategist at Sumitomo Mitsui Asset Management Co., which oversees about 12 trillion yen ($118 billion). “Investors are asking whether this is really right.”

Investors may ask, but the BOJ doesn't care, as it has now become the single, most dominant force in the equity market, and would rather traders thanked it, and be on their way, than worry about the "long-term." As for the BOJ "showing its face in the stock market this much", both the SNB and the ECB are now just as actively involved in the equity market, as reported previously.

As Bloomberg adds, while the BOJ doesn’t buy individual shares directly, it’s the ultimate owner of stakes purchased through ETFs. Estimates of the central bank’s underlying holdings can be gleaned from the BOJ’s public records, regulatory filings by companies and ETF managers, and statistics from the Investment Trusts Association of Japan. Forecasts of the BOJ’s future shareholder rankings assume that other major investors keep their positions stable and that policy makers maintain the historical composition of their purchases.

Meanwhile, Kuroda's insane buying spree means that the central bank’s influence on Japanese stocks already rivals that of the biggest traders, locally called “whales”. It’s the No. 1 shareholder in piano maker Yamaha Corp., Bloomberg estimates show, after its ownership stake via ETFs climbed to about 5.9 percent.

The BOJ is set to become the top holder of about five other Nikkei 225 companies by year-end, after boosting its annual ETF buying target to 6 trillion yen last month. By 2017, the central bank will rank No. 1 in about a quarter of the index’s members, including Olympus Corp., the world’s biggest maker of endoscopes; Fanuc Corp., the largest producer of industrial robots; and Advantest Corp., one of the top manufacturers of semiconductor-testing devices.

The list below shows the top BOJ holdings as of this moment.

The Japanese central bank finds nothing out of the ordinary with becoming the top holder of dozens of stocks, and instead falls back to its cliche of an explanation:

A central bank spokesman, who asked not to be named citing BOJ policy, said the ETF purchases will help officials reach their 2 percent inflation target as soon as possible. Consumer prices fell 0.4 percent in June from a year earlier, the fourth straight month of declines.

It may get even more insane: Kuroda has argued that ETF purchases will help spur economic activity and inflation by boosting risk appetite in Japan. After the BOJ’s last meeting on July 29, he said the central bank has room to increase buying if needed.

As noted above, the bulls love it. For Takashi Aoki, a fund manager at Mizuho Asset Management, the ETF program’s downsides aren’t substantial enough to justify removing it from the BOJ’s toolkit. “The goal is to get Japanese companies making money again, and to reach 2 percent inflation,” said Aoki, whose firm oversees about $50 billion. “The scope of the BOJ’s buying is what’s needed to reach that target. It’s effective.”

Actually, if Takashi has seen a chart of Japan's core CPI, he will note that monetizing stocks has been anything but effective, but who actually bothers with facts these days.

The good news is that, at least for now, the liquidity of the stock market has not collapsed (unlike what has happened in the JGB market where the BOJ is virtually running out of willing sellers). So far, there’s little evidence that the BOJ’s purchases are disrupting the smooth functioning of Japan’s stock market, according to Keiichi Ito, the chief quantitative analyst at SMBC Nikko Securities Inc. But that could change as the buying increases, Ito said, particularly for stocks with low free float, or shares available for trading.

Take the example of Fast Retailing, whose free float is about 25% of shares outstanding. The BOJ owns about half the company’s free float now, a proportion that will rise to 63 percent by year-end, according to Nomura Holdings Inc., Japan’s biggest brokerage. BOJ purchases could soak up the remaining free float at companies including Comsys Holdings Corp. and Tokyo Electron Ltd. over the next year, according to analysts at Goldman Sachs Group Inc. “It’s going to become hard to trade,” Ito said. “Stocks that have a low free-float ratio will become very volatile.”

However, just because liquidity is here today, does not mean it will be there tomorrow. “If the BOJ does not sell stocks, then liquidity will disappear,” Murakami said. “As liquidity falls, the number of shares you can buy starts to decline -- the same thing that’s happening in the JGB market.”

While some raise the question of governance, or just how will the BOJ intervene as a top shareholder in determining the future of so many public companies...

While there’s no sign that the central bank will use its stock holdings to influence how Japan’s public companies are managed, some investors worry that BOJ purchases could give a free ride to poorly-run firms and crowd out shareholders who would otherwise push for better corporate governance. The BOJ isn’t explicitly subject to Japan’s stewardship code for institutional investors, designed to encourage stockholders to push companies for better performance.

... a far more obvious question is ignored: just how will the BOJ ever unwind its unprecedented holdings of not only bonds, which are now roughly 100% of Japan's GDP, but also of stocks, without crashing both the bond and the stock market. And then we remember, that the BOJ will simply never unwind any of its "emergency" opertions just because nobody actually thought that far, plus the whole point of the exercise is hyperinflation or bust, as the sheer lunacy of Japan's authorities is exposed for the entire world to see, leading to the terminal collapse of faith in the local currency. With every passing day, we get that much closer to said terminal moment.

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Kirk2NCC1701's picture

And who are the Top Shareholders of the BOJ?

Lemme guess... Circle Jerk.  Happy Ending?  Not so sure.

"I think I'm going Japanese, I really think so"

garypaul's picture

Well that's it. There's nothing more to debate. This is the fucking textbook definition of fascism/nationalism. We are now guaranteed a world war situation, IMO.

TradingIsLifeBrah's picture
TradingIsLifeBrah (not verified) Aug 14, 2016 7:47 PM

The only shareholder in 2018...

Bilderberg Member's picture

If this isn't a  central bank admitting total defeat, I don't know what is

Poundsand's picture

Defeat?  When are you guys going to figure this out?  They are going to own EVERYTHING!!  Free, with digital currency that the create with the push of a button.

Mortgages?  They own them and thus your house.
Stocks?  They own them and will soon own the companies that are public.

It's facism at it's core, and it is silently but steadily taking over everything.  Meanwhile we call them stupid, out of bullets, etc...  When they own everything without firing a shot, without casting a ballot, without earning a dime of it, who will be the stupid ones?

Rant off.

cayman's picture

Exactly correct.  Great system.  A cartel of unelected money printers gets to buy up the means of production, while the rest of us enjoy negative nominal rates (and tanking dividend yields).  Just imagine what they are going to do when they control the means of production.  It will be a whole new club to beat you with, and every power hungry sicko will be trying to get control of that one.  Freedom ain't ringing. 

Thomas the Crane's picture

Makes sense. The BOJ is owned by an elite mafia. They print their funny money, buy physical assetts and then when the system collapses, the elite mafia are left with the physical assetts, while the people are left with worthless money/paper/digits. 

tricorn teacup's picture

But can the elites hold on to the physical assets when the system collapses?

ATM's picture

It is always easier to defend than it is to recapture.

sun tzu's picture

Physical assets are of no use unless your head is still attached to your body. 

Proctologist's picture

Weinmar Japan, here we come.

Maybe they'll put Bernake's face on the trillion yen note;)

buzzsaw99's picture

keep shoveling wads of cash into ceo bonuses and etf manager fees and something good is bound to happen eventually. /s

nmewn's picture

So, State Owned Enterprises, by another name is...

...wut again? ;-)

Clap4Comments's picture

Same thing happening here?

nmewn's picture

Yes.

I'm operating under the theory that Politburo members & party apparatchik cronies always do better under a patronage seeking system. 

NAV's picture

This is real economic freedom by people working and improving themselves, not. The government answer is, the government has to own you; the government has to own the means of production.

The worse things get in Japan, the deeper they double down. If you want to invest you have to close your eyes to that because that strategy's not going to end well.

SHEEPFUKKER's picture

Top shareholder, JGB holder, and bag holder. 

Golden Phoenix's picture

This is the logical outcome of the low interest rates Japan has been in for years.

We're next.

Stealth nationalism. Stealth socialism. Not so stealthy to anyone paying the least attention.

silverer's picture

That's what I was thinking. What a way to nationalize private companies. They're not even turning off the cameras when they rob the bank, and dumb ass sheeple still don't get it.

Neochrome's picture

Nationalize that shit, yo!

SmedleyButlersGhost's picture

Did I miss  the last 2 history lessons where germany and Japan won the last two Wars?

 

I mean before Iraq, Afghanistan, Iraq, Yemen --- well you know what I mean

gimli's picture

Harikarinomics

Dead Canary's picture

Relax. We live in a new paradigm. The old rules don't apply. It was true in 1999 and it's just as true today.

khakuda's picture

Yup.  And Jennifer Lopez and Kanye West play to sold out arenas, while this guy plays on the streets.

https://www.youtube.com/watch?v=7gphiFVVtUI

nakki's picture

Centralized Confiscation and Consolidation through Counterfeiting. 

Hopefully the BOJ is heavily invested in an audlt diaper company, its a growth business in Japan and the US.

CHoward's picture
The Bank of Japan Will Be The Top Shareholder Of 55 Companies By The End Of 2017

 

Yet somehow this seems to make sense to some people.  This is totally fucking insane.

NubianSundance's picture

It's not insane at all, it's the people owning the nations assets. Viva Fidel! Viva Che! Viva Whoever!

devo's picture

And ZH tells people to buy gold instead of stocks...lol.

Naybe the CBs run this site.

fireant's picture

All your base are belong to us..........BWAHAHAHAHAHAHAHA!

SumSUN's picture

QoQ GDP just came in at 0.0%.
LULZ.

gregga777's picture

"Of course, this is just a hypothetical exercise as the Fed is prohibited from purchasing equities."

Very, very cleverly worded propaganda. Note that the article does not admit that the Feral Reserve actually own equities. The author uses a half-truth. Yes, the Feral Reserve is prohibited from owning equities. But, because the Feral Reserve criminals are above the law they do own $ trillions in equities through cooperative Con Street cutouts. That is the truth that the organs of state propaganda are ordered to coverup.

Father ¢hristmas's picture

They have traders openly listed as traders rofl.  Wait'll all these stackers get their fortunes confiscated by blue helmets when these guys stop inflating equities.

northern vigor's picture

How can it end?

Can the BofJ ever stop buying shares? Probably not or the market will tank.

Can they ever sell these shares? Probably not or the market will tank and they will have to start buying again.

 

Soul Glow's picture

Moral fucking hazard.

Heterodox economics's picture

Japan today has economic fascism.

Wikipedia says of the economics of fascism: "An inherent aspect of fascist economies was economic dirigisme,[4] meaning an economy where the government exerts strong directive influence over investment, as opposed to having a merely regulatory role. In general, apart from the nationalizations of some industries, fascist economies were based on private individuals being allowed property and private initiative, but these were contingent upon service to the state.[5]"

U4 eee aaa's picture

and yet the Nikkei is flat over the last year. This buying is doing nothing

Pieter Bruegel the Elder's picture

It was never intended to work. If it would have solved anything, then they would need to stop the buying of production means. And they cannot have untill they own everything :(.

Radical Marijuana's picture

People who have the power to make the public "money" out of nothing as debts for everyone else MUST end up "owning" everything!

Atomizer's picture

This is a strangle hold of debt. They will execute him and shove worthless Yen into his mouth. Install a new puppet 

Priceless United States Media presentation. Another coup. Hope he sees this. Stay safe.

This also has to do with fukushima daiichi nuclear disaster. Most importantly is pulling your weight with SDR and daily FX trading. Be careful from US. Never met you, be safe. These are sick fucking people. 

oobilly's picture

Truly bizarre.  Talk about back loading the sytem... until there is no system left.

Japan : Land of the cover up.

LoveTruth's picture

Economic "Harakiri" in very slow motion.

I Write Code's picture

Who would have thunk the old zaibatsu would morph into neo-fascism?  Um, everybody?

theprofromdover's picture

and they think the future is bright with giant corporations?

What kind of thinking do these people do? They can be greedy -that's understandable- but stupid, short-sighted and creating the climate for their own brutal destruction, where did they learn that?

Last of the Middle Class's picture

Redistribution of wealth, works every fucking time.