In Japan, the central bank is the largest shareholder
The stock market index in Tokyo rises and rises. Does the central bank now have to stop its expansionary monetary policy? Among the Nippon companies, the internet retailer Rakuten and the retailer Uniqlo stand out.
Dhe Japanese stock market is currently trending in almost one direction: up. The Nikkei index has increased by around 9 percent since the beginning of the year and has been at a level since autumn that the Japanese only know from the time of the stock market bubble in 1989/90. The index recently exceeded the 30,000 mark at times. On Monday it closed slightly up with 29,766 points.
The development is based on the expected recovery of the global economy this year after the global Covid crisis has lost some of its horror. The Japanese economy has also overcome last year’s recession. Many large publicly traded companies have raised their earnings expectations for the fiscal year ending March. At the same time, the financial and monetary policy in Japan remains expansionary.
The Bank of Japan realizes that it has to adapt monetary policy to stock market developments. On Friday, Governor Haruhiko Kuroda will present the results of a strategy review and confirm the expansionary course. However, it is expected that the central bank will allow itself flexibility in the details. Investors are particularly interested in the bank’s buying policy on the stock market. Led by Kuroda, the bank has dramatically expanded its purchases of exchange-traded securities funds (ETF) and Japanese exchange-traded real estate funds (J-Reit).
Expansive monetary policy
That year, the bank overtook the state pension fund as Japan’s largest shareholder. It holds ETFs to the value of 35.7 trillion yen (around 275 billion euros) and J-Reit to the value of 657 billion yen (5 billion euros) through trust banks. In terms of market value, the portfolio is somewhere around 7 percent of market capitalization. In some companies such as the retailer Fast Retailing (Uniqlo), the electronics manufacturer TDK or the measuring device manufacturer Advantest, the central bank owns more than 20 percent of the shares.
With the good development on the Tokyo stock exchange, these purchases, which officially serve to reduce risk premiums, are becoming more and more difficult to justify. In the past few weeks, the bank has reduced the volume of purchases and buys less. If it went into the market earlier when the broad Topix share index lost 0.5 percent or more in the morning session, a minus of one percent was more of a signal for intervention in the end. The central bank is largely expected to abandon the official line of ETF purchases of 6 trillion yen per year on Friday. However, the bank could maintain the upper limit of ETF purchases of 12 trillion yen per year. With this two-pronged communication, the bank could, in the opinion of many analysts, gain more flexibility in purchases, but at the same time signal that it wants to keep open the possibility of drastically expansive ETF and Reit purchases.
The Internet retailer Rakuten recently caused a sensation on the Tokyo stock exchange. On Friday after the stock market closed, the company announced that the Japanese Post Office, the Chinese Internet company Tencent and the American retail group Walmart would invest a total of 242 billion yen (1.86 billion euros) in shares of Rakuten. On Monday, investors thanked with a jump in price. Rakuten’s stock rose 24.1 percent to close trading at 1,545 yen. Japan Post Holding gained 2.5 percent to 1051 yen.
Capital for Amazon rivals
The privatized Japanese Post will in future hold 8.32 percent of Rakuten and will be the largest shareholder after the founding family Mikitani. The use of capital deepens cooperation between companies. Investors are attracted by the prospect that the Internet retailer can better compete against the market leader Amazon with access to the sales and branch network of the Post. The capital injection will also help Rakuten build its cellular network, which will help it establish itself as the fourth major operator in Japan. With its wide range of activities relating to the Internet, payment services and mobile telephony, Rakuten is one of the most active Internet companies in the country.
It is no coincidence that the portfolio resembles the interests of the Japanese technology investor Softbank. Softbank has also just had success with an internet retailer from South Korea. Coupang, in which Softbank and its Vision Fund had invested a total of $ 3 billion, went public in New York and sold shares valued at $ 4.6 billion. It was the largest IPO of a foreign company in New York since the Chinese internet retailer Alibaba in 2014, in which Softbank is also involved. Coupang is valued at more than $ 80 billion in the market. The successful IPO brought Softbank a book profit of around 25 billion dollars.