Bank of Japan investing in Uniqlo? Why Central Banks Buy Stocks [Aim of ETF Buying]

What do you think this number is?

  • FAST RETAILING (UNIQLO) shares, 20.88{5f3ac39ba1b9031997b955ac72c92bb5456d725b06fa10f02cdda1ab745591c7}
  • FamilyMart shares, 18.18{5f3ac39ba1b9031997b955ac72c92bb5456d725b06fa10f02cdda1ab745591c7}
  • Kyocera shares, 15.88{5f3ac39ba1b9031997b955ac72c92bb5456d725b06fa10f02cdda1ab745591c7}
  • Yamaha shares, 14.88{5f3ac39ba1b9031997b955ac72c92bb5456d725b06fa10f02cdda1ab745591c7}
  • Dentsu Group shares, 11.74{5f3ac39ba1b9031997b955ac72c92bb5456d725b06fa10f02cdda1ab745591c7}

This figure is the ratio of the shares indirectly held by the Bank of Japan to the issued shares (as of the end of March 2021 * 1). Including these five companies, the BOJ owns more than 10{5f3ac39ba1b9031997b955ac72c92bb5456d725b06fa10f02cdda1ab745591c7} of 56 companies.

Buying and holding stock means investing in the company. And since the shareholders who own the shares are the owners of the company, the Bank of Japan can be said to be “about 20{5f3ac39ba1b9031997b955ac72c92bb5456d725b06fa10f02cdda1ab745591c7} owners” of UNIQLO and FamilyMart.

Why is a country’s central bank investing in and owning a private sector? The reason is that the Japanese economy is supported by a method called “ETF buying.”

Therefore, the BOJ’s becoming a corporate owner is an unavoidable phenomenon, but it may not be a desirable figure.

(※1)Bank of Japan’s “major shareholder” ranking of companies increasing due to corona damage

ETF is an exchange-traded fund

ETF is an abbreviation for “Exchange Traded Fund” and is translated as an exchange-traded fund (* 2). By the way, ETFs are a type of financial product, just like stocks and general investment trusts, and can be bought by the general public.

An investment trust is a financial product that is a set of stocks of multiple companies. If an investor owns only one stock and the stock price fluctuates, that investor’s assets will also fluctuate. However, with an investment trust, even if the price of one of the stocks drops, if the price of another stock rises, it will not be damaged.

Investment trusts can be said to be financial products with relatively low risk.

ETFs differ from general investment trusts in that they are designed to be linked to specific indicators such as the Nikkei Stock Average. In addition, since ETFs are listed, you can trade (buy and sell) in real time. General investment trusts trade at a price that is calculated once a day.

(※2)What is an ETF? An easy-to-understand explanation of the mechanism, advantages and disadvantages of ETFs (Exchange Traded Funds)

The Bank of Japan is now a major shareholder of Japanese companies

The BOJ’s ETF buying began in December 2010. As a result, the value of the shares indirectly held by the Bank of Japan was approximately 45 trillion yen as of December 2020 (* 3). According to the Nisseikiso Research Institute, the Bank of Japan holds more than 5{5f3ac39ba1b9031997b955ac72c92bb5456d725b06fa10f02cdda1ab745591c7} of the outstanding shares in 395 companies.

Since the market capitalization of all companies listed on the First Section of the Tokyo Stock Exchange as of February 2021 is approximately 700 trillion yen, the BOJ’s 45 trillion yen share will be 6.4{5f3ac39ba1b9031997b955ac72c92bb5456d725b06fa10f02cdda1ab745591c7} (* 3). The Bank of Japan is the “6.4{5f3ac39ba1b9031997b955ac72c92bb5456d725b06fa10f02cdda1ab745591c7} owner” of “Nippon Co., Ltd.”

(※3)Market capitalization of the first section of the Tokyo Stock Exchange, 700 trillion yen for the first time in 3 years Increase in the ratio of electrical equipment

What is “monetary easing by purchasing ETFs”?

The Bank of Japan has been buying ETFs for more than 10 years to ease monetary policy. Monetary easing is the supply of large amounts of money to the Japanese economy.

Why buying ETFs is monetary easing?

The Bank of Japan is promoting monetary easing by buying not only ETFs but also government bonds and real estate investment trusts (REITs) in large quantities.

ETFs, government bonds and REITs are financial products. It’s a product, so you have to pay when you buy it. The Bank of Japan pays the money, and the money goes to the Japanese market.

Then, when it comes to buying products other than financial products, that is not the case. For example, if the Bank of Japan buys a large amount of home appliances and automobiles, the home appliances and automobile industries will certainly be moisturized and become an economic measure, but the large amount of home appliances and automobiles owned by the Bank of Japan will lose value every day.

However, financial products such as ETFs will increase in value as the economy and markets improve. And since the BOJ’s bulk buying of ETFs will support the economy and markets, the more the BOJ buys ETFs, the easier it will be for the economy and markets to improve.

However, economic movements are not supported solely by the Bank of Japan, so even if the Bank of Japan continues to buy ETFs, stock prices may fall. At that time, the value of the BOJ’s ETFs will also decrease. This point will be explained later.

Why is monetary easing necessary?

The Bank of Japan has to ease monetary policy even after buying ETFs because the Japanese economy is weak.

The economy is driven by money. Therefore, if the Bank of Japan does not ease monetary policy, the world will run out of money and the economy will not turn, and the weak economy will become even weaker.

As monetary easing increases the amount of money in the world, more companies and people will use it to “start new businesses,” “make capital investments,” and “try to do business overseas.” If such momentum rises and the Japanese economy strengthens, it is logical that the support of the Bank of Japan will not be needed, but it seems that it will not be realized.

Summary- “Is it okay?” The real intention is “I want to reduce”

It is not good for a central bank of a country to become a major shareholder of “Nippon Co., Ltd.” First, if stock prices fall, the Bank of Japan will suffer a large loss. ETFs are risk assets, albeit with relatively low risk.

The Bank of Japan has officially stated that buying ETFs is a necessary measure, but some of the Bank of Japan are worried that they cannot continue forever.

And I have actually slowed down the pace of buying ETFs (* 4). The BOJ’s real intention should be “I want to stop buying ETFs” or at least “I want to reduce it.”

However, if the Bank of Japan declares that it will “reduce ETF buying,” stock prices will plummet, foreign capital will flee the Japanese market, corporate performance will deteriorate, a large number of unemployed people will come out, and the Japanese economy will panic. prize.

That’s why the official view is that “buying ETFs is a necessary measure”.

(※4)BOJ purchases ETFs for the first time in a month, only once in February