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Global monetary easing lifting Japanese stocks despite weaker economy

19 Comments
By Yuka Nakao

While Japan's economy struggles with the economic fallout from the coronavirus pandemic, its stock market has staged big rallies since the start of November, with the key Nikkei index hitting new highs since the collapse of the bubble economy 29 years ago almost on a daily basis.

But while soaring stock prices in a recession are nothing new, the current overheated market does not reflect investors anticipating an economic recovery. Instead, it owes to central banks around the world implementing massive monetary easing and governments providing stimulus packages, such as handing out cash to households.

"Looking at statistics such as money stock, more money is circulating than actual economic activities due to (the government's fiscal) policies, and such money is flowing into stock and financial markets," said Koichi Fujishiro, senior economist at the Dai-ichi Life Research Institute.

The Bank of Japan is set to further prolong the duration of its ultraeasy monetary policy as it has failed to attain its 2 percent inflation target despite nearly eight years of unconventional easing policy under Governor Haruhiko Kuroda.

Overseas, the U.S. Federal Reserve has projected that it will keep interest rates near zero at least through 2023. The European Central Bank is also sticking with lower interest rates and is expected to provide more stimulus in December.

Central banks' easing programs entail buying massive amounts of government bonds or other investments from banks, pushing interest rates down. This lowers the returns investors and depositors can get on the safest investments, such as money market accounts and corporate bonds.

In search of bigger returns, market players have been forced into relatively riskier investments, such as stocks, which has pushed stock prices higher. Some individual investors have newly joined the stock market to put in their cash handouts.

The BOJ "injecting more and more money into the economy was the biggest mover behind the (Japanese) market rally although the global economy has yet to recover completely," said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities Co.

The Japanese central bank's purchases of exchange-traded funds have contributed to the recent rises as well, according to Seiichi Suzuki, chief equity market analyst at the Tokai Tokyo Research Institute.

Since 2010, the BOJ has invested in equities and is now a dominant market player. To stabilize financial markets amid the pandemic, it has expanded the program by increasing the buying to an annual pace of 12 trillion yen ($115 billion) from 6 trillion yen.

Suzuki said the main buyers so far this year have been the BOJ and companies that bought back their shares, with neither the central bank or the companies selling to take profits when stock prices rise. This has reduced the number of stocks circulating in the market and added to their values.

"With fewer investors holding shares they can sell, even a small buyback sends stock prices substantially higher," Suzuki said.

Dai-ichi Life Research Institute's Fujishiro, meanwhile, said that although share prices have been overly pushed up by the stimulus measures, the real economy is beginning to catch up with market as global business activities have resumed.

"More houses have been built, auto sales have become robust and exports and imports are increasing such as in China and the United States," Fujishiro said. "The Nikkei's upside will be the 26,000 mark and is expected to move around 24,000 for a while," he said.

On Nov 11, the Japanese bellwether index closed above the psychologically important threshold of 25,000 for the first time since November 1991.

© KYODO

©2020 GPlusMedia Inc.

19 Comments
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While Japan's economy struggles with the economic fallout from the coronavirus pandemic, its stock market has staged big rallies since the start of November, with the key Nikkei index hitting new highs since the collapse of the bubble economy 29 years ago almost on a daily basis.

But while soaring stock prices in a recession are nothing new, the current overheated market does not reflect investors anticipating an economic recovery. Instead, it owes to central banks around the world implementing massive monetary easing and governments providing stimulus packages, such as handing out cash to households.

"Looking at statistics such as money stock, more money is circulating than actual economic activities due to (the government's fiscal) policies, and such money is flowing into stock and financial markets," said Koichi Fujishiro, senior economist at the Dai-ichi Life Research Institute.

Of course markets are rallying with monetary easing, a guaranteed basic income for banks.

The money keeps on flowing to banks and financial markets while in Japan and the USA stimulus payments were a one and done deal half a year ago which maybe could cover a month of rent.

12 ( +14 / -2 )

The BOJ now owns more than the GPIF, I hear.

So long as that lasts I guess the central bank has the backs of equity investors... not my game

10 ( +13 / -3 )

a guaranteed basic income for banks.

Nope. They give up an equal value of their bonds in exchange for that cash. The BOJ's asset purchasing in itself doesn't change their bottom line.

-12 ( +2 / -14 )

Global monetary easing lifting Japanese stocks despite weaker economy

Ain't money funny, honey?

16 ( +16 / -0 )

ponzi scheme and games continues...

11 ( +12 / -1 )

Nope. They give up an equal value of their bonds in exchange for that cash. The BOJ's asset purchasing in itself doesn't change their bottom line.

I am in agreement with some of your opinions,, for example on MMT.

I am arguing that QE ,, and it is UBI for bankers,, is a form of economic stability in this crisis and others not available for those not in the financial oligopoly.

That is a fact that doesn't need qualification.

9 ( +11 / -2 )

It is all fakery!

I’ll be closing my rentedoffice at the end of this year.

All other units were closed some time ago and when I close up, it will be the last.

This means 80% of the owner’s income has been lost.

The same thing is happening all over Japan.

Higher stock prices do not benefit the majority of people in Japan.

16 ( +17 / -1 )

All artificial.

One day, somebody will have to pay.

Money goes to the well-off by direct access that the normal people do not have.

It furthers the grim future of a country by making any new investment more risky.

11 ( +12 / -1 )

 such as handing out cash to households.

Wow! A whole Y100 000! To each household more than 5 months ago. We are all whooping it up with all that extra cash! I put a down payment on not only a Bentley, but also one of those luxury condominiums being built in Ebisu I am so flush with government largess!

14 ( +14 / -0 )

a guaranteed basic income for banks.

Nope. They give up an equal value of their bonds in exchange for that cash. The BOJ's asset purchasing in itself doesn't change their bottom line.

This would be the top line.

But I do not think it's the case that all banks are getting this money. Only those financial institutions that have primary dealer status (about 20 of them) are the lucky ones, that are able to buy newly issued bonds from the Ministry of Finance and then flip the bonds to the BoJ shortly thereafter, almost certainly guaranteeing profit for that back-breaking labour.

So much so, that this has been termed the "BOJ Trade" and is an actual financial term now!

https://www.nomura.co.jp/terms/japan/ni/A02606.html

11 ( +12 / -1 )

Sorry, should have said, to each person in each household. That is how I was able to afford the Bentley down payment!

12 ( +12 / -0 )

@kurisupisu

Exactly! You already know the answer, but you still disappointed!

Higher stock prices do not benefit the majority of people in Japan.

Majority of people does not benefit. This sentence is the answer. You have to aim to be in that stock minority to have the access to wealth.

You know the answer so you also know what to do. Do you think that stock minority cares about majority? Nope, not at all they care about how to make more money.

This game is not for everyone, I understand.

Also life is not fair, there is always someone above, stronger more powerful that's how the life is. We need to stop thinking that we are all equal.

8 ( +8 / -0 )

Investment trends by investor type in November are as follows; (till the second week)

Foreigners : Net purchase of JPY 741 billion (only the spot, if including the future, net purchase of JPY 2,160 billion)

Individuals : Net selling of JPY 1,119 billion

Surge of Nikkei index in November has been caused by purchase of the foreigners. Individuals seem to think the present situation is small bubble and continue to sell their stocks. On the other hand, the foreigners may overestimate the present Japanese economy.

2 ( +2 / -0 )

@fxgai

Only those financial institutions that have primary dealer status...

That status is the requirement by certain banks to buy new bonds from the MOF. QE is different. It involves a variety of institutions, including insurers, SELLING bonds to the BOJ. That trade you're talking about doesn't seem to be directly about QE.

This would be the top line.

Well, the debits column would show an amount for bonds being withdrawn. The credits column would show the injection of an equal amount from the BOJ. Net change, as shown on the bottom line, is zero.

-3 ( +0 / -3 )

The fact that the BoJ engages in QE is why the trade exists - that's why it's called the "BOJ Trade". Because the bonds issued are purchased by primary market dealers (BUYING from the ministry) and then immediately sold to the BoJ for a hard-earned profit. The dealers would need to find a normal market without the BoJ handing them profits.

(The rest of the players must have sold all they want to already no?)

And "bottom line" and "top line" don't refer to credits and debits.

https://www.thebalance.com/top-line-vs-bottom-line-356031

0 ( +1 / -1 )

Foreigners : Net purchase of JPY 741 billion (only the spot, if including the future, net purchase of JPY 2,160 billion)

Individuals : Net selling of JPY 1,119 billion

Surge of Nikkei index in November has been caused by purchase of the foreigners. Individuals seem to think the present situation is small bubble and continue to sell their stocks. On the other hand, the foreigners may overestimate the present Japanese economy.

Probably any selling by locals recently is booking a profit as the Nikkei is at a 29-year high, so that's nice for them. I guess this is partly the aim of the BOJ QE in Japanese stocks. Boosting interest in investing among local investors is a good thing, I think. Business investment is what the makes the economy go around!

However the foreigners will sell those futures positions off pretty fast when they want to, and they will want to take their speculative profits before too long methinks.

It's an interesting situation with the BOJ buying trillions of yen worth of ETFs... handing profits to not only locals, but foreign futures speculators as well? So far this hasn't become a problem politically, but how does the BOJ ever stop this without causing a stampede for the exits? Not something they seem to have thought about or maybe Kuroda plans to be retired at least by the time that is to come around.

0 ( +1 / -1 )

As you indicated, the exit strategy is quite difficult after too much purchases of the BOJ. Some analysts think the BOJ may sell the purchased EFT to Japanese individuals with the certain discount, although nobody knows the feasibility.

By the way, now Japanese individuals have enough money to purchase stocks after selling their stocks in November and TOB of NTT Docomo. TOB of NTT Docomo will generate cash of JPY 4 trillion in the next week. If the share prices tumble, they may purchase the stocks aggressively again.

0 ( +0 / -0 )

Christ, this is insane.

0 ( +1 / -1 )

Of course markets are rallying with monetary easing, a guaranteed basic income for banks.

Not really. The stimulus money is flowing to households in the form of higher and extended time unemployment benefits, which allow families to consume more than they would otherwise, and to businesses to keep people employed. This acts to create demand for goods and services, keeping businesses afloat. This is what the stock market is reacting to. Corporations are not failing as anticipated because people have money to spend on their products.

0 ( +0 / -0 )

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