One of Japan's biggest stock investors just reported record gains of more than $50 billion after a well-timed bet. But the person who engineered the windfall won't be getting a Wall Street -style bonus this holiday season, and some have even started saying he shouldn't play the market so much.
That's because the hot-hitting portfolio manager is Gov. Haruhiko Kuroda , head of Japan's central bank. Mr. Kuroda has led the Bank of Japan's push, unusual among global central banks, to invest in the Tokyo stock market as a way of rousing the nation's animal spirits.
In March, he doubled the BOJ's annual ceiling for its purchases of exchange-traded funds to the equivalent of $115 billion . That was the month the stock market began surging after a pandemic-induced dip. It closed Thursday at a 29-year high, up 60% from this year's low.
The superb timing helped the central bank report a record jump for a six- month period in its stock portfolio's gains when it released its semiannual financial report Thursday. It said the market value of its holdings stood at the equivalent of nearly $400 billion as of Sept. 30 , which represented an unrealized profit of $56 billion over what it paid.
Six months earlier, the BOJ had barely any unrealized profit left, and at one point in March Mr. Kuroda said it was carrying large losses.
The stock-buying program, which began under Mr. Kuroda's predecessor a decade ago in the aftermath of the global financial crisis, isn't aimed at making trading profits. It is supposed to encourage broader risk-taking in the economy and ensure that prices are rising at a small and steady clip.
Recently, with inflation stuck around zero, some analysts are questioning whether the program is doing much good--especially during a pandemic, when other factors are weighing on the psychology of consumers and businesses.
Also, the central bank now owns more than 6% of the total value of the Tokyo stock market, leading some to wonder whether the premier symbol of capitalism could be undermined by state influence.
NLI Research Institute strategist Shingo Ide said the central bank's outsize role could hurt corporate governance because it can't act like other shareholders in monitoring company strategy and CEO performance.
"Because such a large unrealized profit means the bank's holdings are also getting bigger and bigger, there will likely be more demand from outside the BOJ to sell the stocks or start thinking about an exit policy," said Naomi Muguruma, an economist at Mitsubishi UFJ Morgan Stanley Securities .
Ms. Muguruma said the BOJ would feel more comfortable starting such a discussion while it is sitting on profits.
The central bank doesn't directly buy individual stocks but invests in a swath of the market through exchange-traded funds, or ETFs. It bought $15 billion in ETFs in March alone, but the pace has slowed significantly in recent months as the market recovers.
Mr. Kuroda said last week that he wasn't thinking of any quick changes in the program, with the stock market one of the bright signs for an economy that is only halfway back from its pandemic bottom.
"We need to prevent any market instability from causing a worsening of business and household confidence," Mr. Kuroda told a parliamentary committee. " The BOJ's ETF purchases were effective in easing instability caused by the impact of coronavirus infections."
Still, there are signs that a rethink is in its early stages. One of the bank's nine policy board members, Takako Masai, said last week that the bank might have to consider tweaking its purchases and alluded to the uncomfortably large size of its holdings.
"It is necessary to have discussions pre-emptively to improve flexibility and nurture the market," said Ms. Masai, who used to work at a commercial bank.
A former Bank of Japan executive director, Shigeki Kushida , said in a recent column in a publication for financial analysts that the BOJ could offer to sell its stocks to individual investors through financial firms rather than dumping the ETFs on the open market.
He said that method could avoid market confusion and encourage households to shift their savings into riskier assets from safe but zero-return bank accounts.
Submitted November 26, 2020 at 07:39PM by OfficerTruth https://ift.tt/33jHDh9
