BOJ Stimulus:

https://mainichi.jp/english/articles/20200311/p2g/00m/0bu/019000c

Article:

TOKYO (Kyodo) -- The Bank of Japan is considering extending further support to the stock market, which has suffered major sell-offs amid the coronavirus outbreak, sources close to the matter said Tuesday.

The central bank is planning to increase its purchases of exchange-traded funds by lifting the annual target of 6 trillion yen ($57 billion) as part of its radical monetary easing program.

Comments and Ideas:

The Bank of Japan, most like pressure from the government and others, needs to do something to show what it might or can do. It debatable just exactly what the BOJ can do at this point, as it has hinted in recent weeks, it has limited ammunition, or tools to work with in fixing/helping/stimulating to the economy including the stock market.

Article:

With large ETF buying, market participants say, the BOJ has stepped in to underpin the market when share prices fall sharply. But its dominance in the ETF sector, with around 29 trillion yen in holdings, has already led to criticism that the bank is distorting the market.

The BOJ will hold a policy meeting on March 18 and 19 to discuss the possibility of increasing its ETF purchases, which would be the bank's first decision on additional monetary easing in more than three years.

Comments and Ideas:

The general idea of market distortion is always a challenge as to how much and when should there be market intervention. Too little and there might not be a significant affect to fix or help, too much and there is the possibility of dead weight loss, meaning a distortion of the real market or the distortion of what is really happening the market. Meaning even more the market is not operating in its natural market state. But these are challenging times and maybe the market needs some kind of significant stimulus to keep it going, until it can get back to its natural state.

Article:

The BOJ, which has failed for years to hit its 2 percent inflation target, also has an option of lowering short-term interest rates further into negative territory. But given the adverse impact on commercial banks' earnings from the ultralow rate, currently at minus 0.1 percent, analysts see expanding ETF buying as the more likely option.

The widespread view is that the BOJ would be forced into additional easing at the upcoming meeting, following an emergency rate cut last week by the U.S. Federal Reserve that led to an unwanted surge in the yen against the dollar and other major currencies.

Comments and Ideas:

The BOJ has hinted the last week or two, that it doesn't have much room for its traditional option of additional easing such as lowering interest rates even more. Bank, most likely, are already being stressed out, and with a lower interest rate, and with economy headed in the direction it is, it might not work or help. But then it has to think about the US Fed and what they did, and how the yen/dollar turned out recently. The ETF for now, might be the only option that is really viable. The BOJ doesn't want the banks to end up in a situation like the US banks in 2008/2009, where they were literally frozen from fear and did nothing to help businesses and consumers.

Article:

The coronavirus outbreak, which originated in China, has cast a shadow over the global economic outlook, prompting investors to flee to the perceived safety of the yen and, in turn, weighing on shares of Japanese exporters, the main engine of the country's economy.

While the Fed is expected to discuss further rate cuts at its two-day meeting from March 17, investors have also priced in a rate cut by the European Central Bank at its meeting on Thursday in response to the viral outbreak, a decision that could add to pressure on the BOJ to follow suit.

Comments and Ideas:

The BOJ is under a lot of pressure now to do something. But whatever strategy it chooses might not be enough or significant enough if the Japanese economy really turns negative. All the BOJ can do it try to lessen the negative activity or slow it down. The ideas of being able to completely change the business cycle might be too much for the BOJ. With the Fed and ECB hinting at further rate cuts the BOJ is under even more pressure to respond.

Article:

BOJ Governor Haruhiko Kuroda pledged last week that the central bank will make every effort to ensure stability in financial markets.

Issuing a rare emergency statement, Kuroda said the BOJ "will strive to provide ample liquidity and ensure stability in financial markets through appropriate market operations and asset purchases."

The BOJ introduced the ETF buying in 2010 as part of its asset purchase program. Under Kuroda, who took office in March 2013, the bank raised the annual purchasing goal to 1 trillion yen the following month.

Comments and Ideas:

The BOJ, like other central banks, rarely make bold statements about what it is going to do. Instead most central banks seem to operate in a stealth mode or use "coded" language in order not to scare the markets into any unnatural market actions.

But these are challenging times so the BOJ must feel it needs to "calm" the markets by giving some bold statement about what it is going to do in the future.

Article:

It then raised the target to 3 trillion yen in 2014 and to the current 6 trillion yen in 2016, fueling market concerns that the massive holdings could cause unrealized losses when share prices tank, hurting the BOJ's balance sheet.

On Tuesday, Kuroda told a parliamentary committee session the central bank's exchange-traded fund holdings are in the red when the Nikkei stock index is below around the 19,500-point line.

"This figure is based on a rough calculation," Kuroda said after the Nikkei briefly fell below the 19,000 line in the morning amid market jitters over the coronavirus' spread.

Comments and Ideas:

It seems the market might be in unnatural territory and or at least treading water, just holding on. If there is a massive sell off, such as in 1988/90 with the asset bubble situation, there could potentially be some challenges. But to be fair, just like the Japan GDP/government debt ratio which supposedly is not to good too, and hasn't cause too much harm yet, the ETF funds situation probably will hold its ground and not cause too many challenges for now.

Have a nice day and be safe out there!

© 2020, Tom Metts, all rights reserved