A year ago, we noted that The Bank of Japan (BoJ) was a Top 10 holder in 90% of Japanese stocks. In December, we showed that BoJ was the biggest buyer of Japanese stocks in 2016. And now, as The FT reports, the real "whale" of the Japanese markets is stepping up its buying (up over 70% YoY) entering the market on down days more than half the time in the last four years.
Since the end of 2010, The FT notes that the BoJ has been buying exchange traded funds (ETFs) as part of its quantitative and qualitative easing programme. The biggest action began last July, when its annual acquisition target was doubled to ¥6tn. Since then, the whale designation has seemed pretty obvious: the central bank swallows a minimum of ¥1.2bn of ETFs every single trading day (tailored to support stocks that further “Abenomics” policies), and lumbers in with buying bursts of ¥72bn roughly once every three sessions.
Some traders say the bank’s supposedly targeted buying has cushioned the whole market. Last year, foreign investors were net sellers of ¥3tn of Japanese shares - a retreat that might have decimated benchmarks had the BoJ not swum in with ¥4.3tn of support via ETFs.
And so it was no big surprise that Kuroda and his pals were active once again this week. As Dennis Gartman notes, Jeff Uscher, in his daily commentary on the Japanese capital markets, sees the fingerprints (or footprints) of The Bank of Japan "Correction Protection Team" on the job.
For the second consecutive day on Thursday, buying ETFs worth ¥72.7 billion during the afternoon session. When the equity market opens weaker, traders are on the alert for possible BoJ buying. Websites aimed at retail investors have the probabilities of BoJ ETF buying operations worked out to a science.
The BoJ bases its ETF buying decision on the close of the TOPIX Index at the end of the morning session. If TOPIX finishes the morning down compared to the previous day’s close, the BoJ will consider taking action.
...both Wednesday morning and Thursday morning, TOPIX was down significantly on the day. On both days, TOPIX bottomed around 10:00 AM, when it had already become apparent that the BoJ would buy ETFs in the afternoon. Sure enough, in each case, the BoJ did come into the market taking day traders along for the ride.
According to StockGate, the BoJ has never failed to buy ETFs when TOPIX is down by more than 17 points at the end of the morning session. Equally, the BoJ has never bought ETFs when TOPIX is up.
Still the message is "get back to work Mr.Kuroda" as Japanese stocks suffered their biggest weekly loss in 5 weeks.
Of the 1,038 business days between April 2013 and March 2017 there were 449 sessions where the market was down: the BoJ bought on more than half of them. Whale or not, investors are now primed to think they are swimming with one.