It often comes as a surprise to those unfamiliar with the Bank of Japan's M.O., that unlike other developed central banks (except the SNB, of course, while even the PBOC recently admitted it now buys stocks directly to prop up the Chinese stock market via the Buttonwood SPV), the BoJ has no qualms about admitting it actively purchases equities, either in the form of single name stocks or, more actively in recent years, ETFs. Or, as the case may now be, selling them.
In a two year period starting in 2002, and then again in the 2009-2010 post-crisis interval, the Bank of Japan, purchased stocks from commercial banks in doubtful financial health to "reduce their exposure to the stock market." The BOJ ended this policy in April 2010 but held on to the stocks for fear of precipitating a broader sell-off. It then moved on to an even more aggressive monetary policy when prime minister Abe launched the latest Japanese QE in 2012, as part of which the Japanese central bank would purchase not only unprecedented amounts of government bonds but also ETFs and REITs, and potentially other risk assets.
However, in a stark reminder, that what central banks buy they eventually have to sell, Japan's Nikkei writes that the Bank of Japan has begun selling equities it bought from commercial banks in the previous decade to ease anxiety over the financial sector.
But before some interpret the move as a risk to Japan's stock "market" as the biggest equity backstopper now becomes a seller, concurrent with the BOJ's liquidations Kuroda will offset these divestments with extra purchases of exchange-traded funds, in effect netting out selling with even more stock buying.
According to the Nikkei, the book value of these BOJ-owned shares fell 16.2 billion yen ($149 million) last month, based on data from account balances published every 10 days. Over the next 10 years, the Bank of Japan plans to divest the entire lot, which had a book value of slightly more than ¥1.3 trillion at the end of April, roughly $12 billion in dollar terms.
The chunk sold last month appears to have had a market value of around ¥30 billion yen, the Nikkei reports.
And just so the selling of equities by a central bank is not perceived as an implicit form of tightening, to neutralize the impact of this selling on the stock market, the BOJ has increased its annual domestic-stock ETF purchases by ¥300 billion. The additional buying, spread out in increments of ¥1.2 billion per trading day, totaled ¥22.8 billion in April.
From May onward, the central bank will expand ETF buying to funds "targeting companies that invest enthusiastically in their operations and employees." As opposed to grudgingly?
The bank's mainstay ETF tracks the JPX-Nikkei Index 400, which is designed partly to promote the efficient use of capital. That probably does not explain why Goldman expects that Japanese companies will buy back a record 7.5 trillion yen ($64 billion) of shares over the next 12 months.
Putting the gross selling (and new buying) in context, the BOJ will continue to buy 3 trillion yen of ETFs a year as part of its monetary easing policy. The question is what will happen if and when the BOJ has to start divesting of all the trillions in equity and JGB holdings with which it has filled its balance sheet. That, of course, is a rhetorical question, for one simple reason: it will never happen.