Offloading stocks to BOJ shift focus to ETF Holdings

(Bloomberg) – The Bank of Japan removes millions of dollars of stock it purchased from a bank that is suffering from a financial crisis earlier than planned two years ago, and loads millions of dollars of stock than planned Finish for. of funds traded on exchanges.

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The book value of the shareholdings acquired by BOJ was 52.8 billion yen ($345 million) as of February 10th, according to the latest BOJ report on its account. Considering the monthly sales pace has been consistently around 10 billion yen over the past few years, the central bank has been able to dispose of all remaining assets in about five months. The bank said in 2015 it would close the sale of these shares by March 2026.

It is an important consideration for investors. Many BOJ watchers believe that it is likely that authorities will not sell assets purchased from banks and ETFs at the same time, with concerns about potential market conflicts. An early finish in bank equity management will increase the likelihood that BOJ will telegraph its intention to sell ETFs by kicking off discussions with market participants about the process as early as this year.

Holding ETFS is the final major part of Governor Uedagawayama’s policy puzzle. He tried to unleash the policy setting of the super suspects that his predecessor would make, so the governor refrained from referring to the ETF’s specific plans, even if he raised interest rates and dismantled the harvester control mechanism. Ta.

Ueda has raised its fees three times in the past 12 months and has also announced a quantitative tightening plan through a massive sale of government debt holdings. The Chief repeated his longstanding position last month, reiterating that he needed more time to contemplate the fate of the ETF.

BOJ holds an ETF of approximately 37 trillion yen ($24.2 billion) in book value, according to the latest account data. In terms of market value, these assets were worth 70.3 trillion yen at the end of September, according to a central bank report. Nikkei 225 Index shares have since risen 3.3%, almost four times as long as the central bank began purchasing ETFs.

BOJ began purchasing equity funds in December 2010 as part of a financial stimulus program aimed at robbing inflation. Former Governor Kuroda has expanded his assets to a great extent, and the bank became the largest owner of Japanese stocks last March before its successor officially stopped operations.

Compared to ETFs, banks’ stockholdings were about 15 times smaller in size. BOJ began acquiring these assets in November 2002 and maintained its purchase for about two years as it sought to maintain stability in the financial system by helping banks deal with the issue of severe bad debts. I did. In the wake of the global financial crisis, banks resumed purchasing between February 2009 and April 2010.

The size of the bank’s stocks is relatively small compared to BOJ’s ETF holdings, but it took the central bank about a decade to bring this closer to emitting all the stocks from its balance sheet. Banks first began selling them in October 2007, then stopped selling a year later due to the global financial crisis. At the end of 2015, he said in April 2016 that sales would resume by extending the sales period to 10 years.

The fate of BOJ’s ETF holdings has attracted the attention of some politicians despite the nation expanding its fiscal spending, even though it already shoulders the largest public debt burden of developed countries. . Japan’s Constitutional Democrats can fund child care measures as they want to turn property ownership into the government.

Some analysts say one option is to replicate what Hong Kong did after stock market intervention in 1998. Japan can also create entities to sell to the market at the right time, and provide assets from the market to long-term institutional investors, they said.

While interest in this issue is growing, there is little need for BOJ to rush to dispose of its equity fund assets. The bank has earned 1.2 trillion yen in revenue from ETF dividends for the fiscal year ended March 2024. That funding flow is expected to continue to provide substantial support for the bank’s finances at a time when the costs of paying interest to the bank rise. In conjunction with that normalization process.

BOJ’s average bank stock sales pace has been 11.1 billion yen per month since 2021. If a BOJ takes the exact same approach as an ETF asset, the process takes 279 years.

(Added comparisons at the chart and stock market level)

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