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Bank Of Japan Goes Full Tilt, Buys Record Amount Of ETFs And REITs In Open Market To Prevent Market Collapse


One can call the BOJ inefficient, slow and for the most part utterly worthless, but one can certainly not accuse them of lying, and beating around the bush. Because unlike all other central banks, with the BOJ at least it has been fully public knowledge that this particular central banks unlike all others (wink wink), is actively engaged in buying equity products, among them REITs and broad equity ETFs (which provide much explicit tail-wags-dog leverage and explains why the FRBNY’s red phone hotline goes directly to Citadel’s ETF trading desk). And buy stocks on full tilt and in record quantities is precisely what the BOJ just did, only as one can expect, with absolutely no impact on the broader stock market. Because once even the central bank is exposed as participating in the market, the element of surprise is gone, and the central bank becomes just one mark (if one with a largish balance sheet). As MarketWatch reports, “The Bank of Japan stepped back into the stock market Monday, making its largest single-day purchase of exchange-traded funds to date… The Japanese central bank said it spent 39.7 billion yen (about $500 million) buying up stock ETFs as part of its ongoing asset-purchase program, breaking a previous record of ¥28.5 billion, set on April 16. In addition to the ETF buys, the Bank of Japan also acquired ¥2.3 billion in real-estate investment trusts Monday.” Too bad that this latest outright bull in a Japan store (sic) intervention had zero impact: “the move failed to prevent a sharp fall for the Tokyo equity market.” But at least they are honest. Imagine the shock and horror (and complete lack of apologies to all those who have predicted just that) when the world finally gets a trade confirm-based proof that Brian Sack was indeed buying (never selling) SPYs and ES. Why everyone would be truly shocked, SHOCKED, that the Fed is nothing but another two-bit gambler in a rigged and broken casino.

For those who are unaware of Japan’s explicit but at least forthright approach to asset price manipulation, read on:

Japan’s monetary authority is almost unique among its peers in the major developed economies, in its high-profile purchases of ETFs, which it began in December 2010 as part of aggressive easing measures.

 

Since then, the Bank of Japan has bought almost ¥1 trillion worth of ETFs — along with another ¥78.9 billion in REITs — and has an additional ¥642 billion to spend on the stock funds after raising the program’s size at it last policy meeting in April.

 

The central bank emphasizes that the program has only broad goals such as supporting interest rates and reducing risk premiums, rather than supporting financial markets.

 

Jefferies Japan’s head of Japanese strategy Naomi Fink says that while the ETF purchases are really part of the broad push to reflate asset prices in the deflation-plagued country, they do “provide a bit of a backstop, when they think they can curb the downside” for the market.

 

“Still, it’s a very small amount,” Fink said of the ETF purchases. “It’s more designed to bolster sentiment … [and] it works best when sentiment is fragile.”

As a tangent here, do these “strategists” even listen to what they sound like? “Very small amount”… “designed to bolster sentiment.” Oh ok. That makes everything so much better. It is just too bad that a Martingale strategy where one has an infinite balance sheet is not all that available to everyone in the world, except to 5 or 6 market participants of course, all of whom are incentivized to destroy their currencies and ramp their “inflation-sensitive” assets ever higher. Surely that according to Jefferies is perfectly acceptable.

Sentiment was certainly fragile Monday, as investors returned from a four-day holiday weekend to find the yen considerably stronger — a negative factor for Japan’s export-focused corporations — U.S. employment growth weaker than expected, and European election results raising more uncertainty for the euro zone.

 

And while investors don’t find out about the Bank of Japan’s market operations until after the close of trading, “there’s a market assumption that when the Topix falls more than 1%, that triggers ETFs,” according to Fink.

 

Still, Fink advised against trying to front-run the central bank by jumping into the market whenever the Topix — Japan’s key broad-market index — drops 1%.

And whatever you do kids, remember: frontrunning central banks is not to be tried at home…

“I wouldn’t exactly call that my favorite strategy,” she said, adding that since the ETF-buying program isn’t meant to be a “price-keeping operation,” it offers little in the way of trading opportunities.

… After all that’s what Prime Dealers are for: and since they make sure that no bond auctions can ever fail (courtesy of the $30 trillion custodial asset cloud, which desperate economists have pegged fancy post-modernist theories to explain how infinite supply can generate infinite+1 demand without having the faintest clue of how the shadow banking system works) there naturally has to be some kickback in it for them. Because otherwise one of them might even speak up and tell the rest of the world just how much of a fraud the system truly is.

 

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