The last time ini­tial job­less claims were this low, Ringo Starr ruled the pop charts

Bloomberg Businessweek (North America) - - Con­tents - �Yuji Naka­mura, Anna Ki­tanaka, and Nao Sano

Gold­man Sachs—the cen­tral bank could be­come the No. 1 share­holder in about 40 of the com­pa­nies that make up the Nikkei 225 by the end of 2017, ac­cord­ing to Bloomberg cal­cu­la­tions that as­sume other ma­jor stake­hold­ers keep their po­si­tions un­changed.

The BOJ’S ETF buy­ing has come un­der crit­i­cism from op­po­si­tion law­mak­ers for med­dling in the mar­kets, but Gov­er­nor Haruhiko Kuroda has de­fended the pro­gram, say­ing re­cently that the pur­chases aren’t big rel­a­tive to the size of the stock mar­ket. As of March the BOJ’S hold­ings amounted to about 1.6 per­cent of the cap­i­tal­iza­tion of all com­pa­nies listed in Ja­pan. That com­pares with about 5 per­cent held by the na­tion’s Govern­ment Pen­sion In­vest­ment Fund.

State in­ter­ven­tion in stock mar­kets has worked out well for some coun­tries. The U.S. govern­ment spent $245 bil­lion to prop up banks dur­ing the global fi­nan­cial cri­sis in 2008, earn­ing a profit. At the height of the Asian fi­nan­cial cri­sis, in Au­gust 1998, Hong Kong bought HK$118 bil­lion ($15.2 bil­lion) of lo­cal shares to de­fend its cur­rency peg, help­ing to fuel a rally that al­lowed it to dis­pose of the en­tire stake within five years.

Still, the longer the BOJ’S buy­ing per­sists, the big­ger the risk that mar­ket prices will de­tach from fun­da­men­tals. As­sum­ing Gold­man Sachs’s pre­dic­tion for more stim­u­lus is cor­rect, the cen­tral bank could end up own­ing a quar­ter of Mit­sumi Elec­tric, a sup­plier to Ap­ple, and 21 per­cent of Fast Re­tail­ing by the end of 2017.

Bulls have cheered the BOJ’S ef­forts to lift share prices, but the cen­tral bank is bound to re­verse its in­ter­ven­tion at some point, a po­ten­tial source of in­sta­bil­ity that Su­mit­omo Mit­sui Trust Bank says is in­creas­ingly on the minds of long-term in­vestors. Says Ayako Sera, a Toky­obased mar­ket strate­gist at Su­mit­omo, “The big­gest ques­tion will be: What hap­pens when the BOJ ex­its?”

The bot­tom line The Ja­panese cen­tral bank has turned into a “whale” on the Tokyo Stock Ex­change, but no one knows for how long.

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