Asset Price Levitation
One of the more preposterous deeds of modern central banking involves creating digital monetary credits from nothing and then using the faux money to purchase stocks. If you’re unfamiliar with this erudite form of monetary policy this may sound rather fantastical. But, in certain economies, this is now standard operating procedure.
For example, in Japan this explicit intervention into the stock market is being performed with the composed tedium of a dairy farmer milking his cows. The activity is more art than science. Similarly, if you stop – even for a day – pain swells in certain sensitive areas.
In late April, a Bloomberg study found that the Bank of Japan (BOJ), through its purchases of ETFs, had become a top 10 shareholder in about 90 percent of companies that comprise the Nikkei 225.
At the time, based on ‘estimates gleaned from publicly available central bank records, regulatory filings by companies and ETF managers, and statistics from the Investment Trusts Association of Japan,’ Bloomberg assumed the BOJ was buying about 3 trillion yen ($27.2 billion) of ETFs every year. The rate of buying has likely accelerated since then.
This post was published at Acting-Man on July 18, 2016.