The Bank of Japan Was The Top Buyer Of Japanese Stocks In 2016

Tyler Durden's picture

When it comes to propping up the stock market in the US, the Federal Reserve does so with a certain degree of nuance, keeping at least one layer of disintermediation between itself and the market, which usually involves "advising" Citadel to intervene when it comes to acute moments of market stress, granting the HFT-heavy hedge fund a green light to stop and reverse and violent selloffs, or more traditionally, allowing companies to repurchase their own stock thanks to (until recently) record low interest rates.

This is nothing new: as Goldman has repeatedly pointed out, in 2016 corporations have been the largest source of equity demand, purchasing $450 billion of US equity through buybacks and cash M&A (net of share issuance). Outside of the Great Recession, corporates have been the primary source of US equity demand (see Exhibit 1).

Furthermore, Goldman recently predicted that as a result of Trump's proposed repatriation tax holiday, buybacks in 2017 will surge even more, to wit:

Buybacks ($780 billion, +30%) will rise sharply in 2017. Our economists expect tax reform legislation will pass during 2H 2017. President-elect Trump and House Republicans have expressed support for a one-time tax on previously untaxed foreign profits as part of their tax reform proposals. We forecast that S&P 500 firms will repatriate $200 billion of their total $1 trillion of cash held overseas in 2017 and spend $150 billion of the repatriated funds on share repurchases. Managements generally remain committed to buybacks, which will benefit from 2% US GDP growth and ex-Energy earnings growth of 6%.

None of that should be news to regular readers, however it is worth repeating that the primary source of demand for US equities are the stock-issuing corporations themselves, who - in a page right out of Baron Munchausen - continue to pull themselves up by their bootstraps with the blessings of the Federal Reserve's cheap money. That may soon be changing, however, now that rates have spiked higher and announced buyback have tumbled 28% Y/Y according to FactSet.

Meanwhile, in Japan, the BOJ had taken a less "stealthy" approach, and as has been the case for years, the Japanese central bank under Kuroda has had far fewer qualms about intervening directly in the equity markets by purchasing either ETFs, REITs or single name securities.

Did we say "less stealthy?" We meant the central bank is now intervening directly in the stock market with all the finesse of a stock bull in a china store (just not Chinese china, it's a patriotic thing), and according to a report by the Nikkei, the Bank of Japan is set to become the biggest buyer of ETFs  in 2016 for the second straight year, in the process masking a srecent surge in foreign investor selling.

According to data through Thursday, the value of the BOJ's ETF purchases this year has topped 4.3 trillion yen ($36.5 billion), up 40% from 2015. Last year, the central bank bought more than 3 trillion yen worth of ETFs. The data was released by the BOJ and compiled by the Tokyo Stock Exchange. Should it continue at this rate, in a few years, the BOJ will have nationalized the entire market: as of this moment it own approximately 2.5% of the market cap of the entire Topix according to the FT chart below.

As the FT recently noted, "the central bank’s overwhelming dominance of ETFs, combined with the structural oddities of Japan’s most famous but esoteric equity benchmark, the price-weighted Nikkei 225 Average, has given the BoJ indirect but massive positions in many of the country’s biggest corporate names." Normally, this kind of activity would be associated with command-style, centrally-planned economies such as that of the USSR. Now, however, it is considered part of the "new normal."

As the BOJ bought, foreign investors sold...  a lot; in fact more than a net 3.5 trillion yen worth of Japanese shares through Dec. 16. These sales were "offset" by the BOJ's intervention, traditionally through trust banks, including those commissioned by the Government Pension Investment Fund, to buy a net 3.5 or so trillion yen worth of shares.

What is scarier, however, is the BOJ's own direct intervention: the figure for trust banks was below that for the BOJ, which "will become the largest buyer of ETFs this year," said Masatoshi Kikuchi of Mizuho Securities.

This year, the central bank increased its buying after doubling its annual ETF goal to purchase 3 trillion yen worth of the instruments. The decision came in July as the bank stepped harder on its yen-printing pedal. The central bank's ultimate goal is to flood the economy with so much money that prices get moving predictably upward again; the BOJ is targeting a 2% inflation rate. Instead, one day it will create a currency crisis, as faith in the Yen collapses and unleash hyperinflation. We are not there just yet, though.

The value of the bank's ETF holdings, based on purchase prices, is 11 trillion yen. However, unrealized gains send the market value to 14 trillion yen, according to an estimate by Mitsubishi UFJ Kokusai Asset Management, Nikkei added. 

And while foreigners have bought more than a net 2 trillion yen of Japanese shares since November, when Trump was elected president, the amount does not offset their selling in the first half of 2016. Furthermore, there is speculation that the Trump rally is on its last legs, and the next move will be lower. This has already been noted in the USDJPY which has fallen for 4 straight days.

The BOJ's ETF program has propped up share prices but distorted "the formation of stock prices," said Shingo Ide of NLI Research Institute. Alternatively, one could say that the BOJ's ETF program has made the very definition of "market" a joke. The ETF-buying program allows, and in fact mandates, that the central bank purchase a wide range of stocks regardless of the issuing companies' business results. This means that zombie companies which would otherwise be insolvent and bankrupt, are kept artificially alive thanks to central bank intervention, which in turn leads to deflation as in the race to the bottom, "zombie companies" around the globe are willing to undersell all their competitors in "hail Mary" hopes of survival, leading to lower interest rates and even more central bank intervention.

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JRobby's picture

Not really news

rmopf2010's picture

That's right markets are so predictable Ctrl+P, Print Moar, Buy stawks do while infinite

Sunny2's picture

Stocks, bonds are overpriced. Then what left? PM, commodities and bitcoin?

Dirtnapper's picture

Personally, I like Ethereum while it's cheap (until it's public release in 1Q17).

Perimetr's picture

The plan all along

has been for the banksters to buy *everything*

The Central Banks print unlimited amounts of "money" (fiat currency, legal tender, digital these days)

which they distribute among all their bankster friends/fiends

and use to control and loot the nations of the world




beemasters's picture

They learn the trick from the Fed.

nakki's picture

Centralized Confiscation and Consolidation through Counterfeiting

Stuck on Zero's picture

Governments don't need investors any more. They don't even need people to drive the economy. All they need are bots trading derivatives to have a high GDP economy.

Blankone's picture

Someone correct me if I am way off base.  But, the BOJ is not buying stocks (not primarily) but is buying ETF's.  Thus the BOJ is not even holding a secured interest in any of the companies.  They are placing bets with a middle man, a bookie of sorts.   They own paper with the bookie they do not own stock or any percentage of a company.  If the bottom falls out the ETF goes under (or it could go under anyway) and the BOJ is just an unsecured creditor of the ETF.  The companies the ETF might have been, or claimed to have been, based upon could continue to exist but the BOJ has no claim on them.

The creators of the ETF can move the invested money around, make it disappear, create new fees or increase old ones to take greater amounts from their investors and if the ETF fails it will be difficult to claw back money.  So, for such a large institution as the BOJ there is no reason to buy ETF in order to buy exposure to a variety of stocks.  They are investing sufficient funds to buy a vast array of stocks directly.  Thus you have to question if the BOJ purchasing paper through an ETF is simply a method to move money to the creator of th ETF and that is to the determent of the Jap people.

I suspect I must misunderstand some basic info about the ETF's and the BOJ's rights as owner of ETF paper. 

max2205's picture

Fake news fake stock prices fake economic reports fake boobs....Happy new year 

JRobby's picture

Did you skip over scrotal botox injections purposely?

Kirk2NCC1701's picture

Honest headline: "Casino* buys own chips"

* Central Bank

That's really Old News, that only a few million people in earth know about. Those who do know about it, are either laughing or crying. 

To Hell In A Handbasket's picture

lol. Who else is dumb enough to buy .gov bonds, except the central banks themselves? They are the only players in town.

DetectiveStern's picture

Ban digital "money"

Aubiekong's picture

So when the governemetns can buy everything with funny money they print or borrow where does that leave the comon man?  Answer - A slave...

TheVoicesInYourHead's picture


What is the cost and current value of BOJ and SNB holdings in USA and EU equity markets?

Soon they will likely need to report to SEC that the central banks own 10% or more of individual names.

Dr Ongo's picture

So the ETF is a sort of Reverse Bond ?

chinoslims's picture

QE's aren't enough.  ZIRP and NIRP weren't enough.  We give up.  We'll just buy our own markets.

Herdee's picture

It's something called "confidence". There's an invisible confidence barrier. Black swan events caused by randomness will eventually destroy the faith in the paper currency and the government backing it. Watch for the ponzi to unravel in the next few years. Printers of paper fiat have a lot of staying power but when the dam breaks,all hell will break loose. Some currencies and their countries are already going down slowly,one by one. The U.S. will be the last to go down but Gold will be the last man standing tall in the ring guaranteed.

marbilly's picture

the entire dow is being bought in a massive levereged buyout, you can see this in low ipo numbers, meaning, companies dont get private funding and dont need to go public, see uber.

so while markets are moving up on thin volume, the number of actual companies traded on equity markets have decreased over time.

for example, the wilshire 5000 has less than 3700 companies listed on it in 2016. the last time it had 5000 listed companies was in 2005 and it peaked at 7600+ companies listed on it in 1998.

"the wilshire 5000, a shadow of its former, [had] from 1980 to average of more than 300 companies every year that went public. Since then that number has dropped to an average of around 150 a year."

"The relentless pace of share buybacks and new highs in the S&P 500 point to nothing less than a slow-motion buyout of the entire market, which will widen the gap between the uber-rich and everyone else."


"What happens when we run out of stocks to index?

Today, it's the Wilshire 5000 that runs out of stocks. In 10 years, the S&P 500 investment committee will be grasping for shares, urging Larry Page and Mark Zuckerberg to issue D shares and F shares of Google and Facebook just to maintain the facade of diversification in an increasingly undiversified world."


                    This is Neo-Feudalism pure and simple.

In a country without public markets, corporate fiefdoms will dominate the landscape.

Instead of actual castles and moats, fiefdoms will have legal barriers to protect them, like low minimum wages, tax loopholes, and regulatory capture.


Warren Buffett always said he likes businesses with "economic moats." Just imagine how much he would like the moats of the new American feudalism.


user2011's picture

We all going to work for the japanese government.   They kept printing toilet paper and buy up all the equities in the world.

marbilly's picture

we're turning japanese, i really think so.

JBPeebles's picture

Japanese live by consensus. If the consensus is that stocks cannot be allowed to fall, they won't allow it if it's in their power.

Japan is a frontrunner of the U.S. in its trend to provide corporate welfare due to demographic impacts on aggregate demand. The intervention is made for justifiable reasons the first time around.

Here it was Lehman is failling, Cramer's "they know nothing." Out of that came an unprecedented showering of free credit to the banks and already wealthy who were supposedly injured by the crisis and so vital to the economy as job creators--essentially trickle down myths.

Then the intervention gets repeated. Perhaps it comes under a new name. It'll be aimed at stabilization or some such never-ending, vague excuse--an excuse that will allow virtually any form of central bank intervention, again and again under some new program.

The Japanese are masters of managing the group. Their society has had one of the lowest levels of inequity. For generations their corporate leadership style emphasized very high quality levels and direct responsibility, leading even to some C.E.O.s going to consumer's homes to apologize for defective products.

It's comforting to know that everyone is a lot closer to each other and that the underclass will be taken care of. Incidentally, the Japanese public thinks that many unemployed are taken care of but the economic decline has hit middle aged salarimen hard. Many have been rejected from their marriages and turned out on the street.

We don't have the demographic problem they do, but our Fed is obsessed with preserving the wealth of the 1%. We never had the income equity of the Japanese but the direction here, like there, is towards have's and have not's. This may not be the intent but if the government embraces endless bailouts, it is enabling greater poverty quite willfully.

And worse, a political constiuency develops for the purpose of continuing the subsidies--a political force that will oppose free market reversion on the road to growing Statism, with its hallmarks of lower productivity, less business formation, and greater privilege and entitlement.

galant's picture

Such is the Fascist dream.

National socialism. Government shapes the economy through ownership of corporations.

Like Hitler, they despise free market capitalism.

It might lead to freedom of thought.

Davidduke2000's picture

Free money, they print at will to destroy investors who invest logically . central banks are a big fraud.

Yen Cross's picture

  lol--- We go print sum [ ¥ ] aaaaaaaaand buy a bunch of shitty stocks. It's NO wonder the Japanese birth-rate is SO low.

  Japanese boys are total faggots! Japanese women are smoking HOT!

Dilluminati's picture

So let me guess.. BOJ borrowd Dollar in carry trade.. and bought stocks.. which 401K cronies bundled in my plan?

sounds like comcast and the clinton crime family to me!

onmail1's picture


SchlitzTallboy's picture

The trend is your friend.

buy Kirin and Sapporo