Today the Bank of Japan rolled out quantitative-easing-with-a-catch—disappointing the markets, which had expected more aggressive monetary easing.
It really was just so BoJ. As central banks go, you see, Japan’s is one of the world’s strangest. Some examples:
The BoJ is one of the only central banks in the world that is publicly traded. (Belgium’s, on which BoJ is modeled, and Switzerland’s are others.) According to the 1942 Bank of Japan Act, the bank’s stated capital—¥100 million at the time—was “to be contributed to by both the government and non-governmental persons,” with the government taking at least 55%. And sure enough, the Bank of Japan is listed over-the-counter on the Jasdaq under ticker 8301. Today, for instance, it closed at ¥45,850 ($517) per share, down 3.5%, though it’s up 26.7% since a year ago. The only shareholder listed by FactSet is New York-based fund Horizon Asset Management, which holds around 10% of shares outstanding. However, shareholders receive neither voting rights nor dividends.
BoJ’s quantitative easing program has also embraced one of the most unconventional approaches to asset-purchasing out there. The vast majority of central banks decline to buy equities outright (for example, the Federal Reserve’s charter forbids it), though a few exceptions are beginning to emerge. However, Japan’s central bank has no such squeamishness. Exchange-traded funds, corporate bonds, foreign mutual funds, real estate securities—it’s all game for the BoJ (pdf). Last May, for instance, it bought $500 million in ETFs to prop up Japan’s equity markets, and it currently has around $15 billion in Japanese ETF holdings on its books. Starting in autumn of 2010, BoJ began buying up real-estate investment trusts (REITs) as part of the ongoing asset-purchasing associated with quantitative easing, and now has some ¥110 billion ($1.24 billion) on its books. And as of the end of last November, ¥38 billion-worth of foreign currency assets were held in foreign mutual funds.
So far, that’s too little to mean much, says Joseph Gagnon of the Peterson Institute for International Economics. But it could—particularly if the bank started investing more aggressively in Japanese ETFs. BoJ is “unorthodox, and I think that’s a good thing. If they started doing a lot more [of buying ETFs] it would really be something of interest,” Gagnon says, pointing out that, at around $15 billion, its ETF holdings are a drop in the bucket of total Japanese equities. “If it were … 20 or 30 times that it still wouldn’t be excessive to any extent. It would help push equity prices up, encourage people to spend, encourage businesses to invest—all those things would be good.”
But beyond all that is the crowning glory of BoJ’s oddness, as David Weinstein, professor of Japanese economics at Columbia University, has it. “The biggest thing is probably that it hasn’t been able to fix deflation,” Weinstein told Quartz. “Do they actually want positive inflation at 2%? They’ve been making noises [to that effect] but they’re not carrying through.”
Many hope that BoJ’s new open-ended asset-purchasing program, announced today, will change that. However, Gagnon says that BoJ’s emphasis on buying short-term Japanese government bonds, which have so far made up the majority of its asset-purchases, has little impact because their near-zero yields make them no different from cash. ”At a minimum, for [the bank] to say with a straight face that they’re doing something, they need to buy 10-year JGBs,” he says. “So it doesn’t really matter if it’s open-ended or not because the asset purchases don’t have much of an effect.”