The BOJ Goes On A Record ETF Buying Spree To Prevent A Market Rout

Over the weekend we showed something troubling: in the week ended March 23, the ECB stepped up its purchases of corporate bonds under the Corporate Sector Purchase Programme, just as EUR-denominated Investment grade spreads blew out.

And, as Goldman calculated, after averaging €1.4 billion in weekly corporate bond purchases YTD, that week the ECB purchased €2.2 billion - 55% above their 2018 average and nearly double the €1.26BN in purchases from the prior week - in an effort to calm the market just as yields blew out.

In other words, just as the manipulated, CB-backstopped markets were sliding, and suddenly threatened to careen into a momentum-ignited selling panic, it was up to the ECB to provide the support to avoid an all out liquidation, undoing years of central bank intervention in a matter of hours. And that's precisely what the ECB did.

As it turns out, the ECB wasn't alone in intervening in the "market" to prevent a rout.

According to Bloomberg calculations, in the turbulent month of March which saw the Nikkei tumble as the USDJPY slumped to a multi-year low amid global equity volatility and the return of the Moritomo scandal, the Bank of Japan spent a record 833 billion yen ($7.8 billion) it had printed out of thin air to buy ETFs tracking the country’s shares, the largest amount ever according to data back to 2010.

As Bloomberg points out, not even the record BOJ intervention was enough to avoid a drop: the central bank stepped in as the Japanese market slumped and its benchmark Topix index inked its first back-to-back monthly declines since the start of 2016.

Worse, Kuroda’s bank hedge fund is now ahead of its scheduled goal to spend 6 trillion yen a year on ETFs purchases prompting some to ask what happens when central banks do indeed step away: "If the market keeps on falling, there will be the problem of what they do next,” said Kazuyuki Terao, CIO for Japan's arm of Allianz Global Investors.

And while the market may or may not keep falling, the BOJ is faced with another problem: as of this morning the central bank owns 77% of all Japanes ETFs, up from 75% just a few months back. At this rate it will become the sole owners of not only all JGBs but also all Japanese ETFs.

And to think there was a time - not long ago - when naive market participants assumed that central banks don't actively participate in markets to directly prop up assets, both stocks and bonds.

Now? It's seen as perfectly ordinary that institutions that create money out of thin air and can buy with complete disregard for price or cost, step in to support risk assets at their leisure. We would have added "in the market", but at this point it is anything but.