The Bank of Japan, already notorious as the biggest holder of Japanese government bonds, has now earned the dubious title of the largest "whale" in the domestic equity market.
The BOJ purchased 5.58 trillion yen in exchange-traded funds in fiscal 2016, an 86% leap from the previous fiscal year. The total puts the bank above corporations and international investors as the single biggest buyer of Japanese equities. Last July, the BOJ decided to double the annual purchases of ETFs tracking the Nikkei Stock Average, Topix and other indexes to 6 trillion yen. Each round of ETF purchases by the bank lifts the Nikkei average by about 30 points, according to estimates by Nomura Securities. That translates to the Nikkei average receiving an aggregate boost of roughly 1,700 points after the current ETF policy was adopted. The Nikkei average added 2,150 points in fiscal 2016, meaning the BOJ's purchasing program alone accounts for the vast majority of the gain.
So Japan's Central Banks seems compelled to buy vast amounts of stock on the Nikkei index to support high valuations.
How does this have a happy ending?
We know the so called "plunge protection team" in the United States has purchased stocks in the last financial crisis. What is going on that market forces are inadequate in the view of Central Banks to be the determiners of value?
This type of information adds to my thesis that actual market values are exceptionally difficult to know given the amount of government and central planner interference in the market process.