BOJ Distorting Japan's Stock Market

The Bank of Japan's purchases of the country's exchange-traded funds (ETFs) has been distorting the market, offering traders a leg up on picking stock winners. Japan's central bank has been scooping up ETFs and the numbers are large enough to sway markets. At its late July meeting, it said it would increase its ETF purchases so that their amount outstanding will rise at an annual pace of 6 trillion yen ($56.7 billion), from 3.3 trillion yen previously.Get live Nifty Future Tips News Updates visit us : http://www.ripplesadvisory.com/nifty-future-.php or Get Two Days Free Trial just on One Missed Call @98-27-80-80-90 

 

The book value of the BOJ's ETF holdings was 8.7 trillion yen at the end of July, Citigroup said, citing BOJ data, with the investment bank estimating the market value of 9.7 trillion yen at that time. That's introducing distortions into Japan's stock market, not just from the amount, but also due to the makeup, with more than 50 percent of the purchases in ETFs tied to the Nikkei 225 index, analysts said. 

 

That's because the Nikkei 225 index is weighted by the price of individual stocks, compared with other indexes, such as the broader Topix, which are weighted by market capitalization. Indeed, in a note dated Sunday, CLSA analyst Nicholas Smith called the Nikkei 225 a "Flintstones index from an abacus age." But the BOJ's focus on Nikkei 225-tied ETFs can open up opportunities for traders.