When Will the Bank of Japan Own 100% of Japanese ETFs?

August 14, 2016

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Courtesy of Mish.

The Bank of Japan is on a rampage buying everything in sight, from stocks to bonds. It’s on course to becoming the largest shareholder of 55 companies by the end of the year.

Please consider The Bank of Japan’s Unstoppable Rise to Shareholder No. 1.

The Bank of Japan’s controversial march to the top of shareholder rankings in the world’s third-largest equity market is picking up pace.

Already a top-five owner of 81 companies in Japan’s Nikkei 225 Stock Average, the BOJ is on course to become the No. 1 shareholder in 55 of those firms by the end of next year, according to estimates compiled by Bloomberg from the central bank’s exchange-traded fund holdings. BOJ Governor Haruhiko Kuroda almost doubled his annual ETF buying target last month, adding to an unprecedented campaign to revitalize Japan’s stagnant economy.

The central bank’s influence on Japanese stocks already rivals that of the biggest traders, often called “whales” in the industry jargon. It’s the No. 1 shareholder in piano maker Yamaha Corp., Bloomberg estimates show, after its ownership stake via ETFs climbed to about 5.9 percent.

The BOJ is set to become the top holder of about five other Nikkei 225 companies by year-end, after boosting its annual ETF buying target to 6 trillion yen last month. By 2017, the central bank will rank No. 1 in about a quarter of the index’s members, including Olympus Corp., the world’s biggest maker of endoscopes; Fanuc Corp., the largest producer of industrial robots; and Advantest Corp., one of the top manufacturers of semiconductor-testing devices.

Disappearing Float

The free float at Fast Retailing Co., whose top weighting in the Nikkei 225 makes it a major recipient of BOJ money, is about 25 percent of shares outstanding. The BOJ owns about half the company’s free float now, a proportion that will rise to 63 percent by year-end, according to Nomura Holdings Inc., Japan’s biggest brokerage.

BOJ purchases could soak up the remaining free float at companies including Comsys Holdings Corp. and Tokyo Electron Ltd. over the next year, according to analysts at Goldman Sachs Group Inc.

“It’s going to become hard to trade,” Ito said. “Stocks that have a low free-float ratio will become very volatile.”

“The BOJ being a stable shareholder of such a large ratio of stocks is going to make investors question if governance is being held to account, and the debate around this is going to get more aggressive as they increase holdings,” Sumitomo Mitsui’s Ichikawa said. “People are going to question how long the BOJ should keep this policy going.”