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Helicopter money in Japan a daily affair

The BOJ buys shares every afternoon when prices drop in the morning: ex-BOJ official
Monday, August 15, 2016 - 05:50
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"The BOJ already owns 3 per cent of free floating shares in the market," says Mr Sasaki referring to stocks that are not cross-held among firms and financial institutions. "This proportion could reach 5 per cent in a year; the BOJ could be regarded as a major shareholder of corporate Japan."

Tokyo

ALMOST daily now - helicopter missions are turning Japan's central bank into a "major shareholder in corporate Japan", says Tohru Sasaki, head of markets research at JPMorgan Chase Bank in Tokyo.

There has been intense speculation as to whether or not the Bank of Japan could or would resort to helicopter drops of money in order to get the Japanese economy moving, and whether such drops would take the form of funding fiscal spending by the government or financing cash handouts from government.

But according to an analysis by Mr Sasaki, which was made available to The Business Times, analysts and economists have been looking in the wrong place for evidence of helicopter drops by the BOJ.

The BOJ began getting into stock buying as early 2010 when it started purchasing exchange-traded funds, or ETFs, says the former BOJ senior official.

But it was relatively small beer in those days, with the BOJ limiting itself to 450 billion yen (S$6 billion) of ETF purchases in total.

Now, however, six years later, "the BOJ's ETF holdings amount to 8.7 trillion yen", which represents the lion's share of the central bank's total equity holdings of 10 trillion, according to Mr Sasaki.

And, following a decision by the BOJ's Policy Board on July 29 to approximately double the amount of its annual stock ETF purchases from 3.3 trillion to six trillion yen, the central bank is set to become a bigger force in the market

"The BOJ already owns 3 per cent of free floating shares in the market," says Mr Sasaki referring to stocks that are not cross-held among firms and financial institutions. "This proportion could reach 5 per cent in a year; the BOJ could be regarded as a major shareholder of corporate Japan."

He says that he did not wish to pass judgement on "whether the dropping of such a large amount of money on the stock market by the central bank is the healthy and right policy". But he added: "I believe the BOJ's ETF purchases in amounts should be supportive for stock prices, in the short term at least."

This aspect of the BOJ's massive quantitative and qualitative monetary easing (which in turn forms part of the larger monetary, fiscal and structural elements of Prime Minister Shinzo Abe's Abenomics policies) has gone relatively unnoticed now.

Analysts such as Jesper Koll, chief executive officer of investment group WisdomTree, Japan, have argued that the BOJ itself cannot engage in distributions of cash to the public through so-called helicopter drops.

Instead, he says, the BOJ will buy increasing amounts of Japanese Government Bonds to enable the government to increase its spending on infrastructure and other public projects. This will be a form of helicopter money.

But the "helicopters" are already on their way, according to Mr Sasaki, and they are coming from an unexpected direction.

This, he says, explains why Tokyo share prices have continued to rise of late despite the yen strengthening as the BOJ buys shares every afternoon when prices drop in the morning.

These money drops are serving not only to bolster stock prices but also to encourage policy aims of the government, says Mr Sasaki. In addition to stepping up its overall ETF purchases, the BOJ is targeting "ETFs that include stocks of companies that proactively invest in physical and human capital".