TOKYO -- Japanese and overseas investors alike are growing weary of the outsize role Japan's central bank plays in dictating the direction of the stock market here.
The Bank of Japan's decision against pushing interest rates further into negative territory lifted shares across the board Wednesday, particularly those of banks.
"Now we have to be mindful more than ever of how extensively to hold bank shares," a perplexed Masamitsu Oki at Fivestar Asset Management said. The long-term business environment for the banking sector remains harsh, with Japan's population continuing to decline. But the BOJ shifted its policy emphasis Wednesday to controlling bond yields -- specifically, steepening the yield curve out of consideration for commercial banks.
"We have to disregard banks' profitability on their operations and own their shares or else it'd be difficult to outperform the market," Oki said.
The market welcomed the BOJ's new game plan Wednesday, buoying more than 90% of all stocks listed on the Tokyo Stock Exchange's first section. Still, not everybody was cheering.
While giving a thumbs-up to the central bank move in saying that it "enhanced the sustainability of its monetary policy," Takashi Maruyama of FIL Investments (Japan) said its new policy is designed to build anticipation almost by force.
If the BOJ keeps wielding greater influence, it will "erode the market's price-formation functions," warned Masafumi Oshiden at BNY Mellon Asset Management Japan.
Ahead of the BOJ policy meeting, banking and insurance shares grew popular after July 29, but drugmakers and food producers -- which had been bought as an alternative to bonds -- increasingly faced selling. "The latest policy switch might force bond investors -- who had shifted their funds to stocks -- to exit," said Tetsuo Seshimo at Saison Asset Management.
Real estate stocks were also among Wednesday's gainers. That did not make much sense, a fund manager at a foreign-affiliated asset management company said. Higher long-term rates typically hurt real estate companies by pushing up interest payments. Higher rates also can cause property prices to decline.
If the rate-increase scenario welcomed so enthusiastically by the stock market on Wednesday came true, real estate prices would fall 9.3% a year, according to a calculation by Makoto Sakuma at the NLI Research Institute. Wednesday's upturn in real estate stocks might have been driven by investors who hadn't really considered the new policy's likely impact on the sector.
Stock indexes are also susceptible to the BOJ's purchases of exchange-traded funds. Right after the central bank unveiled at the end of July plans to double its ETF purchases, investors preferred components of the Nikkei Stock Average to constituents of the Topix index. But on Wednesday, after the bank shifted the emphasis of its purchase program to Topix-tracking ETFs, the broader benchmark's jump outpaced that of the Nikkei average.
This presents a dilemma for active-management investors. The new policy means "the BOJ will buy a broad range of stocks, and this heightens the risk that stocks that you don't own may rally," said Kazuyuki Terao at Allianz Global Investors Japan.
"Some foreign investors are starting to turn their backs on the BOJ-driven market," Ryoma Sugihara at Societe Generale in Tokyo pointed out. If this trend gains momentum, it would deal a severe blow to the Japanese market.