Orix Capital Trading – BOJ will continue massaging markets, worries investors


Investors are increasingly concerned that prices of Tokyo shares will become warped if the Bank of Japan (BOJ) continues to massage the economy with its share and bond purchasing policy.

Analysts say it will become increasingly difficult for investors to recognise companies who are doing well from those who aren’t, not to mention a host of other issues like misallocation of funds, if the BOJ insist on dominating the financial markets.

Another knock on affect will be that firms simply won’t feel the pressure to complete their obligations to shareholders if their share prices are being manipulated by the central bank.

Many financial specialists say that interest rates have already been warped due to the BOJ’s domination of the bond market after four years of unbridled fiscal stimulus.“In the short-term, of course, many of the listed equities on the Tokyo exchange will look much more attractive and demand will heighten for those stocks,” said Director of Asset Allocation at Orix Capital Trading, Steve Rogers in a phone interview.“The question however is, will these kinds of headline grabbing fiscal gimmicks help the economy in the long run? We highly doubt it. It is likely to cause more harm than good as it makes investors lives much more difficult. Artificially setting the price of risk assets is going to seriously muddy the water.”

Instead of investors focusing on individual companies and their quarterly performance, all eyes are now on the BOJ and their post-meeting announcements, which invariably include a figure of how much cash they are going to pump into the bond markets.

The strategy is quite simple, if not misguided. The Bank of Japan is flooding the domestic financial landscape with funds in a desperate attempt to haul them out of the deflation that has plagued the nation for decades. The only way to do this is to make huge purchases of assets; particularly Japanese government bonds (JGBs).

Last month the BOJ announced they would be widening their purchasing plan to exchange-traded funds (ETFs) saying the annual figure might be as high as 7 trillion yen by the end of next year. That makes the central bank the biggest buyer on the Tokyo exchange by a long way, especially considering foreign interests are backing off due to the lack of positive economic and structural reforms taking place in the country.


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