For most businesses, shareholders range from average investors to major investment funds. It’s pretty rare for a central bank to be a shareholder in a handful of companies let a lone most firms trading on a stock exchange. But that’s the position Japan is in right now.
According to estimates from Bloomberg News, using public data, the Bank of Japan (BOJ) is a top 10 shareholder in the world’s third-largest economy. In fact, the money-printing central bank is a shareholder in about 90 percent of the Nikkei 225 Stock Average.
Under Haruhiko Kuroda’s present stimulus plan, the BOJ acquires roughly 27.2 billion (3 trillion) of ETFs each year. This number is projected to soar to 7 trillion yen.
To gain an understanding of how much of a shareholder the BOJ is, the central bank is a major owner of more Japanese blue-chips than BlackRock or Vanguard.
Officials at the monetary authority and in the federal government may think this is a wise monetary directive, this type of move is distorting valuations and even hurt any improvements in corporate governance. Let’s also not forget about how much of an effect the BOJ is having on the nation’s bond market.
Due to the stock market falling by nearly 10 percent year-to-date, and with official inflation rates at close to zero, most project the central bank will increase its ETF buying.
Shingo Ide, chief equity strategist at NLI Research Institute in Tokyo, had these wise words: “This is clearly distorting the sanity of the stock market.”
Advocates say this move by the BOJ will help increase share prices in difficult times. However, when the BOJ eventually winds down this initiative, stock values will likely collapse as they don’t have the training wheels anymore. If the market is declining right now, how much will it collapse when the BOJ reverses course?
–AM
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