The Bank of Japan Owns Half of Japan's ETFs Market and It May Just Buy the Whole Damn Thing

"A system of capitalism presumes sound money, not fiat money manipulated by a central bank. Capitalism cherishes voluntary contracts and interest rates that are determined by savings, not credit creation by a central bank."  -- Ron Paul

A free market is a market economy system in which the prices for goods and services are set freely by consent between vendors and consumers, in which the laws and forces of supply and demand are free from any intervention by a government. While the stock market was a free market system, since the Great Recession, the central bankers (Fed, ECB and BoJ) have completely changed the rules of the game. With quantitative easing in the US, the Fed purchased trillions in mortgage backed securities and US Treasuries to keep rates low and to keep liquidity especially high. The Bank of Japan went even further. Since 2011, the BoJ has been buying exchange-traded funds or ETFs to push its stock market higher. While this may seem very extreme, I was shocked to find out that the Japanese central bank owns more than half of the nation's market for ETFs! That's not a typo. At the end of September, the BOJ has accumulated an ETF position of 52% of the entire ETF market!

Ready to buy it all

According to Bloomberg's latest survey, 16 of 36 economists are expecting the BoJ to boost stimulus this Friday with 12 saying it will expand its ETF-buying budget. Last October, the BoJ tripled its ETF budget and the Topix Index is up 21% since that announcement. Citigroup Global Markets Japan's Tsutomu Fujita says there's room for them to triple it again. “Buying bonds is no longer possible, but they still have plenty of scope to increase ETFs purchases to, say, 10 trillion yen from the current 3 trillion yen,” said Fujita.


If the BoJ increase its ETF-buying again, what are the implications? The BoJ is simply creating money out of thin air and pushing asset prices higher. Can it own 70% of the ETF market? What happens if it owns 100%? These are the questions that investors must ponder with a system that is no longer free. Can central bankers simply just buy everything with no repercussions? While they haven't had success in creating inflation and can't stop economic gravity, perhaps they have found a way to manipulate the financial markets higher. The end game is unclear but for now, the markets march higher.
Share This Story, Choose Your Platform!

About the Author: Chris Wang

Chris Wang


Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Runnymede Capital Management, Inc.-"Runnymede"), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Runnymede.  Please remember that if you are a Runnymede client, it remains your responsibility to advise Runnymede, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Runnymede is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the Runnymede's current written disclosure Brochure discussing our advisory services and fees is available for review upon request. Please Note: Runnymede does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Runnymede's web site or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.

Search Website

Annuity Review Database

Follow Our Podcast

Google Podcasts
Apple Podcasts

Recent Posts