The Bank of Japan Is Sitting on a Pile of Profit but Isn’t Sharing the Wealth

The Bank of Japan Is Sitting on a Pile of Profit but Isn’t Sharing the Wealth


TOKYO—Making a $130 billion profit in the stock market isn’t as fun as it seems—at least if you’re the

Bank of Japan.


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Over more than a decade, the Japanese central bank, uniquely among its global peers, has poured hundreds of billions of dollars into local equities and now owns about 7% of all the shares traded on the Tokyo Stock Exchange’s first section. With stock prices near a 30-year high in Japan, shares bought by the central bank years ago have surged in value.

Instead of winning praise for its investing acumen, though, the BOJ faces growing pressure to stop acting like the Tokyo whale and find ways to spread the wealth. Some are calling on the BOJ to hand out shares to the public or use its gains to seed corporate innovation, in an echo of debates in the U.S. about whether the stock market’s gains are benefiting ordinary people.

Others say the BOJ is interfering with the independence of the stock market and needs—at the least—to stop adding to its holdings.

“It is unhealthy for a central bank to be the biggest shareholder and have its presence grow even further in a market that serves as the foundation of capitalism,” said

Kazuo Momma,

an economist at Mizuho Research Institute who formerly served as a BOJ executive director in charge of monetary policy.

BOJ Gov. Haruhiko Kuroda defended his policy in Parliament on Feb. 24. “I haven’t seen any severe damage to market functions or any big issues involving corporate governance” at the companies that are partly owned by the BOJ, he said.

Mr. Kuroda has said the BOJ’s policy helped stabilize the market during its brief crash in March 2020—triggered by the initial Covid-19 wave—and investors fear any hasty move to reverse course could undo the stock market’s advance.

Central banks around the globe have introduced huge asset-buying programs in this century, especially since the 2008 global financial crisis, as well as negative interest rates. Japan, a pioneer with these moves, added the idea of using central-bank money to prop up the stock market, hoping to revive the animal spirits of investors.

The market rose even more than the BOJ hoped, with the Nikkei Stock Average topping 30,000 this year for the first time since 1990.

Most of the BOJ’s purchases are in exchange-traded funds that track the entire Tokyo Stock Exchange first section and it doesn’t buy ETFs focused solely on a particular industry. It doesn’t give specific purchase amounts for each ETF on its eligible list.

Partly because of quirks in the 225-issue Nikkei Stock Average, which underlies other stock funds the BOJ has bought, the central bank has extra large holdings in some companies. It indirectly holds about a quarter of semiconductor test-equipment maker

Advantest Corp.

and a fifth of Uniqlo clothing-store operator

Fast Retailing Co.

, according to NLI Research Institute strategist

Shingo Ide.

Many market players expect the central bank to make adjustments as soon as its regular policy meeting on March 18 and 19. Currently it has a target of buying ¥6 trillion, equivalent to $56 billion, in stock funds every year, though it authorized a temporary expansion up to ¥12 trillion during the pandemic.

The Bank of Japan now owns about 7% of all the shares traded on the Tokyo Stock Exchange’s first section.



Photo:

franck robichon/Shutterstock

The BOJ could remove its annual buying target, market players say, allowing it to stay out of the market unless a crisis occurs.

Signs of a policy shift have already emerged. While the BOJ has almost always stepped in with afternoon buying when the market suffers a sharp fall in morning trading, it held back on several occasions in February. It did, however, make nearly $500 million in purchases on Feb. 26 when the Nikkei fell 4%.

As of March 1, the BOJ was sitting on unrealized gains equivalent to about $132 billion, according to Mr. Ide of NLI Research.

The BOJ’s Mr. Kuroda hoped rising stock prices and other monetary easing would trigger robust investment by companies and consumer spending. He tied the stock purchases to his 2% inflation target.

But with pandemic-related restrictions, prices have been falling in recent months compared with year-earlier levels and economists say gross domestic product is likely to shrink this quarter.

Politicians have noticed the contrast between a struggling economy and a roaring stock market in which government entities are the biggest players. After the Bank of Japan, a government fund that invests the nation’s pension reserves is the second-largest holder of Japanese stocks. Together they hold about one in every eight shares.

In Parliament, opposition lawmaker

Seiji Maehara

said the BOJ should use the fruits of its stock buying to help companies train workers or promote innovation. He pointed to a suggestion by the former head of the Tokyo Stock Exchange’s parent that the BOJ could sell its stock funds and plow the profits into promising industries. Mr. Kuroda said he had no plans to do that.

Market players have highlighted a November article in a journal for securities analysts written by a former BOJ official,

Shigeki Kushida,

in which he suggested the central bank’s shares could be handed out or sold on favorable terms to the public with inducements to hold them.

Mr. Kushida said the idea would encourage stock investing in a country where few people personally own shares. Advocates of the idea have pointed to a similar move, shortly after World War II, when American occupation authorities broke up conglomerates and sold shares to the Japanese public.

Takahide Kiuchi,

a former BOJ board member, said people have had trouble seeing the benefits from the central bank’s stock-market foray.

“If the BOJ could sell stocks to lock in profits, it could increase payments to the government,” which in turn could spend the money in popular ways, Mr. Kiuchi said. “But it is difficult to do so.”

Write to Megumi Fujikawa at [email protected]

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