Japan’s central bank has significantly boosted its ETF purchases as of late, with its balance of holdings swelling to 15.93 trillion yen — that’s $144 billion — as of the end of March.
That’s about an 80% uptick from the same time last year, and up sevenfold from when the program began in April 2013.
What’s more, the Bank of Japan’s controversial asset purchases are apparently timed to buy any dips in the markets. The Nikkei has some details about the practice:
The bank apparently buys frequently on days when the stock market dips in the morning, serving to stabilize share prices.
“The BOJ’s ETF purchases help provide resistance to selling pressure against Japanese stocks,” says Rieko Otsuka of the Mizuho Research Institute.
Should the current pace of buying continue, the BOJ’s ETF holdings would reach about 30 trillion yen in about two years. The market capitalization of the Tokyo Stock Exchange’s first-section companies comes to 550 trillion yen.
The purchases serve to put a floor under Japanese stock prices in the short term, but the long-term implications are largely unknown. When it comes time to unwind the bank’s balance sheet, a large market sell-off would likely occur, considering how large of position the central bank now has.
Critics of the move are also concerned about the obvious market manipulation taking place, with a government entity stepping in each time the market drops to push prices back up.
But it’s hard not to recommend Japanese equities right now, considering the guardian angel waiting in the winds to buy every dip.
The iShares MSCI Japan (NYSE:EWJ) closed at $54.09 on Friday, down $0.49 (-0.90%). Year-to-date, EWJ has gained 10.70%, versus a 8.89% rise in the benchmark S&P 500 index during the same period.
EWJ currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #1 of 75 ETFs in the Asia Pacific Equities Ex-China ETFs category.