The Bank of Japan sits on a pile of profits but does not share the wealth

Over more than a decade, Japan’s central bank, surprisingly among its global counterparts, has poured hundreds of billions of dollars into local funds and now accounts for about 7% of the world’s capital. all shares traded on the first share of the Tokyo Stock Exchange. With stock prices near a 30-year high in Japan, shares bought by the central bank years ago have risen in value.

Instead of earning praise for the investment acumen, however, the BOJ is under a lot of pressure to stop working as a Tokyo whale and find ways to spread their wealth. Some are urging the BOJ to make shares available to the public or use their benefits to seed corporate innovation, in the wake of debates in the U.S. over whether stock market benefits outweigh for ordinary people.

Others say that the BOJ is undermining the independence of the stock market and that it must – at least – suspend its holdings.

“It is unhealthy for a central bank to be the largest shareholder and its presence to grow later in a market that is the foundation of capitalism,” said Kazuo Momma, an economist at the Mizuho Research Institute ab usually the BOJ’s executive director in charge of monetary policy.

BOJ Gov. Haruhiko Kuroda defended his policy in Parliament on February 24. “I have not seen any significant damage to market activities or any major corporate governance issues” by the companies involved in the BOJ, he said.

Mr Kuroda has said the BOJ’s policy helped calm the market during its brief crash in March 2020 – triggered by the first wave of Covid-19 – and investors fear a move could any swift course to turn forward the progress of the stock market.

Central banks around the globe have introduced major asset purchase programs in this century, particularly since the global financial crisis of 2008, as well as negative interest rates. Japan, which was at the forefront of these movements, added to the idea of ​​using central bank money to stimulate the stock market, hoping to revive the animal spirits of investors.

The market rose even more than the BOJ had hoped, with the average Nikkei stock rising to 30,000 this year for the first time since 1990.

Most BOJ purchases are in trading funds that monitor the first segment of the Tokyo Stock Exchange and do not buy ETFs with a direct focus on a specific industry. It does not provide specific purchase amounts for each ETF on its eligible list.

Partly due to quilts in the Nikkei 225-issue Average Stock, which is the basis of other stock funds bought by the BOJ, the central bank has additional large holdings in some companies. It indirectly holds about a quarter of Admtest semiconductor test equipment manufacturer Corp.

and a fifth of Uniqlo Fast Retailing clothing store operator Co.

, according to NLI Research Institute strategist Shingo Ide.

Many market players expect the central bank to make changes as soon as their regular policy meeting on March 18 and 19. Currently their target is to buy ¥ 6 trillion, equivalent to $ 56 billion, in stock funds each year, although it temporarily authorized an expansion of up to ¥ 12 trillion during the pandemic.

The BOJ could remove their annual purchase target, market players say, allowing it to stay out of the market unless an emergency occurs.

Signs of a policy shift have already emerged. While the BOJ has almost always entered an afternoon buy when the market is suffering sharply in morning trading, it held back several times in February. It did, however, make nearly $ 500 million in purchases on Feb. 26 when the Nikkei fell 4%.

On March 1, the BOJ was sitting on unrealized gains amounting to about $ 132 billion, according to Mr. Ide of NLI Research.

Mr Kuroda from the BOJ hoped stock prices would rise and other cash rebates would provide strong investment for companies and consumer spending. It tied its stock purchases to its 2% inflation target.

But with pandemic-related restrictions, prices have been falling in recent months compared to a year earlier and economists say gross domestic product is likely to decline in this quarter.

Politicians have noticed the difference between a struggling economy and a strong stock market in which government agencies are the biggest players. After the Bank of Japan, government funds that invest the country’s pension reserves are the second largest Japanese stockholder. Together they hold about one in eight sections.

In Parliament, a lawyer against Seiji Maehara said the BOJ should use stock-buying products to help companies train employees or encourage innovation. He noted a suggestion from the Tokyo Stock Exchange’s parent vice president that the BOJ could sell its stock assets and plow the profits into promising businesses. Mr Kuroda said he had no plans to do so.

Market players have highlighted an article in November in a magazine for securities analysts written by former BOJ official Shigeki Kushida, in which he suggested that central bank shares could be given up or sold on publicly favorable terms with incentives to maintain them.

Mr Kushida said the idea would encourage stock investment in a country where many people do not personally own shares. Proponents of the idea point to a similar move, shortly after World War II, when American property authorities broke conglomerates and sold shares to Japanese people.

Takahide Kiuchi, a former BOJ board member, said people have struggled to see the benefits of a central bank stock market study.

“If the BOJ could sell stocks to lock in profits, it could increase payments to the government,” which could cost the money in popular ways, Mr Kiuchi said. . “But it’s hard to do that.”

Write to Megumi Fujikawa at [email protected]