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Economy

BOJ replaces foreign traders as biggest buyer of Japanese shares

Cumulative purchases higher for first time since start of Abenomics

The Bank of Japan building in Tokyo.

TOKYO -- The Bank of Japan has continued to increase its presence in the Japanese stock market, replacing foreign investors as the biggest buyer in terms of accumulated purchases for the first time since the so-called Abenomics market started in November 2012.

According to data for the first week of September (Sept. 4-8) released by the Tokyo Stock Exchange on Thursday, foreign investors sold more Japanese shares than they bought by a total of 294.8 billion yen ($2.67 billion) on the first and second sections of the TSE and the Nagoya Stock Exchange, as well as the startup markets.

As a result, their net purchases since the second week of November 2012 (Nov. 12-16) came to 13.7 trillion yen. That figure has fallen consistently since reaching more than 20 trillion yen in the middle of 2015.

During the same period, cumulative purchases of exchange-traded funds by the BOJ, excluding new-type ETFs added to the central bank's ETF-buying program for monetary easing, totaled 13.9 trillion yen as of Thursday.

Foreign investors account for roughly 70% of trading in Japanese shares, but they tend to opt for near-term trading.

In contrast, the BOJ holds on to the shares it buys. With the bank doubling the annual pace of ETF purchases to 6 trillion yen in July last year, the amount of ETFs it holds has steadily increased.

Some analysts have voiced concern about the adverse effects of the BOJ's share purchases, which have underpinned the Japanese stock market.

Shingo Ide, chief equity strategist at the NLI Research Institute, forecast that the number of listed companies of which more than 10% is indirectly owned by the BOJ will increase to 29 in March 2018 from 12 in December 2016.

The BOJ's index-linked ETF-buying program, which purchases shares on a broad basis regardless of company fundamentals such as earnings, "makes it difficult for other investors to figure out proper stock prices," Ide said.

Tomohiro Okawa, chief strategist at P.S. Oskar Group, said, "foreign investors engaging in medium- and long-term passive investment are lowering the ratio of Japanese shareholdings at present." As Japanese stocks hardly raise growth expectations, they have become less attractive to foreign investors, he said.

While U.S. and European monetary policies are moving toward "normalization," the BOJ has been buying ETFs as a matter of routine because it continues with its massive monetary stimulus.

But when the BOJ's exit policy eventually starts to figure in market players' minds, the risk of stock price plunges will "unavoidably" increase for companies owned by the BOJ, Ide warned.

To minimize such a risk, the BOJ should end the ETF-buying program "as soon as possible," P.S. Oskar Group's Okawa said.

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