What Happens When Central Banks Become Major Buyers in the Stock Market? Case Study: Japan

by Bill Witherell
Financial Sense

The Bank of Japan decided at its July 28–29 meeting to boost its purchases of exchange-traded funds (ETFs) to an annual rate of 6 trillion yen, almost double the previous rate of 3.3 trillion yen. The BOJ began its ETF purchasing in October 2010 at a much more modest annual pace of roughly 450 billion yen. The rate was doubled to 1 trillion yen a year in April 2013 and increased further to around 3 trillion a year in October 2014. As a result of the latest doubling of the BOJ program, BOJ purchases are averaging 2.9% of daily trading values, doubling the previous average.

The ETF purchase program has the apparent objectives of improving market confidence and stimulating consumer and business spending. Its success so far in furthering those objectives has been modest at best.

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