The Bank of Japan becomes The Tokyo Whale

Today has already seen some eye-catching and thought-provoking news from the land of the rising sun or Nihon. Fortunately its new stealth fighter has not been seen taking off from its aircraft carriers excuse me helicopter destroyers merely from a runway. But we have seen news on a subject I analysed on the 19th of this month with this question.

How many central banks will turn into hedge funds?

As you will see there have been many other questions posed by what has now taken place in Japan so let’s crack on.

The Tokyo Whale

Those of you who recall what happened when The London Whale scandal emerged you may already be troubled by that name. Here is a Bloomberg reminder.

The trader known as the London Whale lost at least $6.2 billion for JPMorgan Chase & Co. in 2012……..More importantly, it raised two worrisome questions: What if the banks are still addicted to risk? And what if regulators haven’t gotten better at spotting that?

For me there was a familiar issue.

In a sense, what Iksil and his colleagues did was the same old story — doubling down after a loss with bigger and bigger bets.

The doubling down issue is a clear theme for us to consider as we peruse the announcement from Bloomberg.

The Tokyo Whale Is Quietly Buying Up Huge Stakes in Japan Inc.

JP Morgan again or another bank considered too big to fail?

They may not realize it yet, but Japan Inc.’s executives are increasingly working for a shareholder unlike any other: the nation’s money-printing central bank.

Regular readers will have been aware of the reality of this but as we go on the scale of it comes home to roost.

It’s now a major owner of more Japanese blue-chips than both BlackRock Inc., the world’s largest money manager, and Vanguard Group, which oversees more than $3 trillion

Here it is in another form.

I am not so sure about his order of importance but that relates mostly to the time zone he is broadcasting too. As we look into the detail we see this.

The BOJ ranks as a top 10 holder in more than 200 of the Nikkei gauge’s 225 companies, effectively controlling about 9 percent of Fast Retailing Co., the operator of Uniqlo stores, and nearly 5 percent of soy sauce maker Kikkoman Corp. It has an estimated shareholder rank of No. 3 in both Yamaha Corp., one of the world’s largest makers of musical instruments, and Daiwa House Industry Co., Japan’s biggest homebuilder.

Something for shoppers at Uniqlo to consider as well as musicians and even me when I buy some more soy sauce! Another way of looking at the scale is shown below.

At an estimated 8.6 trillion yen as of March, the BOJ’s holdings amount to about 1.6 percent of the total capitalization of all companies listed in Japan. That compares with about 5 percent held by the nation’s Government Pension Investment Fund.

So it is a trillion Yen larger than the Bank of Japan numbers I posted last week and nearly a third of the size of what is considered an enormous player in Japanese markets the state pension fund. At the current rate of purchases it will not be long before it passes that benchmark as I pointed out on the 19th.

Second, it would purchase ETFs and J-REITs so that their amounts outstanding would increase at annual paces of about 3 trillion yen and about 90 billion yen, respectively.

The companies shown below by Francine will be increasingly influenced by this.

I will come to the waiting point later.


This is normally an issue for the military world and as I hinted at earlier there has been news on this front in an increasingly militarised Japan. From The Japan Times.

Japan on Friday became the fourth country to test-fly its own stealth jet….According to the Defense Ministry, the Advanced Technology Demonstrator, called X2, took off from Nagoya airport in Aichi Prefecture at 8:47 a.m. Friday morning.

I am not sure this bit of tub-thumping is entirely reassuring.

During World War II, Japan’s aerospace industry led the global competition with its Zero fighter.

The stealth theme does come into The Tokyo Whale story too.

While the Bank of Japan’s name is nowhere to be found in regulatory filings on major stock investors…….estimates can be gleaned from publicly available central bank records, regulatory filings by companies and ETF managers, and statistics from the Investment Trusts Association of Japan. The BOJ declined to comment on Bloomberg’s findings.

More stealthy than the jet? Anyway in terms of individual holdings it would appear that the Bank of Japan is none to keen on us knowing. Mind you it might be one way of ensuring that Japanese firms raise wages! Buy all the shares and send a nominee to the public meetings to vote.


There are quite a few here so lets us run through them.

1. Shareholders are supposed to have a role in the strategy of a company so how will the Bank of Japan deal with this?

2. How does price discovery in the Nikkei 225 and Topix indices work when the Bank of Japan buys and presumably pushes prices higher? This creates a danger of the sort of false market central banks are supposed to be guardian against.

3. On that road how will the Bank of Japan regulate itself as an equity investor? Also what about other Japanese regulatory authorities.

4. Abenomics was supposed to be a break from “pork barrel” politics as we consider the now pretty much mythical thrid arrow. As the quote below shows it is buying what might be regarded as big industry’s shares or the sort of favouring reminiscent of Abe’s previous government.

The central bank’s use of large-cap ETFs means its positions are concentrated

5. The elephant in the room is of course the issue of how much all this buying has driven the stock market and in particular Japan’s big businesses higher? Whilst acolytes may argue it is only 1.6% of the market remember that there has been substantial net buying which is continuing. Where would the Nikkei 225 equity index be without this.

6. The rises in the Japanese equity indices are likely therefore to be affected by the principles of Goodhart’s Law and indeed the Lucas Critique.

7. Should losses be made will the Bank of Japan just print the money required and who will explain the consequences to the Japanese taxpayer?


It was only on Friday that news leaked about the Bank of Japan considering offering negative interest-rates on loans. This had an immediate impact on the Yen which at 111.3 versus the US Dollar is much weaker than before the news. Indeed speculation about Bank of Japan moves at its policy meeting are apposite to today’s article. From Bloomberg.

If the BOJ accelerates its ETF purchases this week to an annual rate of 7 trillion yen — the pace predicted by Goldman Sachs Group Inc. — the central bank could become the No. 1 shareholder in about 40 of the Nikkei 225’s companies by the end of 2017, according to Bloomberg calculations that assume other major stakeholders keep their positions unchanged. It could hold the top ranking in about 90 firms using HSBC Holdings Plc’s estimate of 13 trillion yen.

Care is needed with any forecast from the Vampire Squid which is usually for its benefit but I note that HSBC’s effort exceeds it considerably. At such a pace the Bank of Japan would soon become large even for a whale. The risk of unintended consequences gets larger as it grows along the lines of this consequence of the UK National Living Wage.

Salami slicing? Zizzi responds to living wage by cutting free staff food to margherita pizza or a plate of spaghetti ( @sarahoconnor_ )

There is also the issue of what I call the exit strategy from this or how you ever reverse it? I have argued many times that central banks have charged into QE style efforts with no plan for either retreat or even the consequences of victory.

Also will we in a few years time be saying the same about the property market in Japan as it seems likely to seem more central banking buying?

I will leave you with Alphaville who back in 1984 were rather prescient about the Bank of Japan.

When you’re big in Japan, tonight
Big in Japan, be tight
Big in Japan, oo the Eastern sea’s so blue
Big in Japan, alright
Pay, then I’ll sleep by your side
Things are easy when you’re big in Japan
When you’re big in Japan





18 thoughts on “The Bank of Japan becomes The Tokyo Whale

  1. I think that we should all stand up and congratulate the elites of the main Western economies. They have:
    1. Enriched themselves massively;
    2. Created the largest Ponzi scheme in history without the media really even latching on to it. It is not that long ago that QE was seen as the preserve of Weimar Germany and Zimbabwe. Now, everyone does it on a colossal scale (no-one batted an eyelid when the ECB increased its buying by 20 billion Euros a month). It is now spreading to equities and no-one seems to care;
    3. Kicked the can so hard down the road that we can hardly see it any more (George Osborne’s QE buying 2068 bonds…).
    It can only be done:
    1. Because most people have no idea what is happening;
    2. The media, with the honourable exception of this blog, don’t report it; and
    3. For a time. It will end in tears and I just hope that your military analogies don’t become reality.

    So, raise your glasses, ladies and gentlemen, to those who run the world and salute their skill in enriching themselves at our expense.

    • Super post James that really sums up how I feel.

      With you on 1,2 and 3, and also err 1,2 and 3.

      The collective silence in the media about these issues is deafening.

    • Hi James great post the reason the mainstream media don’t report other than superficially on matters of importance is because their role is to keep the public in the dark.The BBC is a government mouthpiece and the others are owned by media moguls .Goebelles would be delighted by how many of them have followed his techniques.
      I get my information from this fantastic blog and other similar sources on the web.I only tune into Sky BBC and ITV news to watch their omissions and misrepresentations but it is amazing the power they have to misinform public opinion on all important issues of the day

  2. ‘Care is needed with any forecast from the Vampire Squid which is usually for its benefit ‘

    The exception to the Lucas critique that proves the rule?

    • Hi Dutch

      Perhaps so although the Vampire Squid is playing so many hands these days it is hard to keep up. Mind you in the end of course it only has only objective. In the words of Matt Taibbi

      “relentlessly jamming its blood funnel into anything that smells like money.”

  3. Hi Shaun fantastic piece again today.When this rotten house of cards collapses as it must,you get my vote for Chancellor
    This cannot continue much longer I thought we had maybe another 5 years but think the end is now much closer .I cannot understand how the credibility of Abe ,Kuroda and the other economic and monetary witch doctors is not in tatters.
    There is no doubt this Ponzi scheme will end disastrously like nothing in economic history when it does due to the inter connectedness of the financial system it will happen so quickly there will be little time to react
    They have known the economic iceberg was there since 2008 yet they have maintained course and speed…unbelievable..criminal irresponsibility on a colossal scale.
    Maybe they plan to start WW3 it’s not Putin or the Russians I’m worried about he appears saner and more intelligent than the rest.
    Thanks for keeping us informed.

    • Hi Private Fraser and thanks

      As to your point about monetary policy we will find out a little more on Thursday morning when we get the latest Bank of Japan statement. After all they are facing a few thresholds as the bond market is getting ever more illiquid, they now own 55% of ETFs and when they went into negative interest-rates the Yen got stronger. Not only must we ask will they throw the kitchen sink at it ? But also how much of the sink is left?

      Meanwhile those who used you argue with me on twitter such as one of the FT Lex and editorial writers seem to have gone silent. It is not as if I have stopped writing critiques of Abenomics as today’s article proves…….

  4. Great blog, as usual Shaun. Almost four years ago, John H. Cochrane, the Grumpy Economist, wrote an op-ed for the Wall Street Journal, whose title explains its argument: “The Federal Reserve: from Central Bank to Central Planner”. From your scary blog it seems that the Bank of Japan has gone the same way, creating all the same problems. Professor Cochrane says in his op-ed: “But the Fed has crossed a bright line. Open-market operations do not have direct fiscal consequences, or directly allocate credit. That was the price of the Fed’s independence, allowing it to do one thing—conduct monetary policy—without short-term political pressure. But an agency that allocates credit to specific markets and institutions, or buys assets that expose taxpayers to risks, cannot stay independent of elected, and accountable, officials.” It would seem the same is true for the Bank of Japan. If central bankers are going to act like central bankers, there is no way that they can, or should, be independent of political influence.

    • Hi Andrew and thank you.

      John H. Cochrane perhaps did not know how right he was as his point applies to ever more central banks. However the Bank of Japan is at the head of the pack in this respect with its JGB (Japanese Govt. Bond) holding some 80% of annual GDP. That of course does not account for the equity and property holdings.

      If he has another go may I suggest “The rise and fall of the central planners” as in Tokyo in particular it is not going well. Indeed as you point out this is as much fiscal policy now as monetary although of course it gets more complex as Governor Kuroda was picked by Prime Minister Abe to do this. So in a way they agree with you…

  5. Hi Shaun
    Another thought provoking blog.

    As things seem to be gathering
    pace in Japan it is likely that it’s
    population are unwittingly headed
    toward collectivism by default,
    that is almost Orwellian, is it not?


    • Hi JRH

      It is an interesting point especially as Japanese culture is collectivist in nature anyway. That was a clear lesson from the run up to and experience of the second world war and much of it remains. So the are extremely open to an Orwellian style experience.

  6. “It was only on Friday that news leaked about the Bank of Japan considering offering negative interest-rates on loans”

    but havent you pointed out that the CBs are wanting inflations higher?

    well it has been for us to needs food , fuels and housing but at the restricted narrow measurement ( called “core” – orwellian ! ) its been absent ,

    so when can I get my negative interest loan for a car?

    or will it be just negative for savers ( and pension companies – just when HMG forces the great masses into one (!!)) ?

    do they know what that will do ? and is that why they want to ban large denomination notes ?

    Lewis Carol would be laughing , wouldnt he?


    PS: when oil prices start increasing in 6 months time , then what?

    • Hi Forbin

      Well higher oil prices will be especially bad for Japan with its need for vast energy imports. But as you say it is official policy to get inflation at 2% per annum. It may suit big business in Japan but it will not suit the Japanese worker or consumer. A familiar theme isn’t it?

  7. I’m old enough to remember in the aftermath of the 1987 market crash when the Japanese government called in the CEOs of the main Japanese financial firms and basically ordered them to buy Japanese shares. They obeyed and the Nikkei fell far less than did the Western markets, at least until the start of their long term slump that started around 1989/90. I suppose this new policy of getting the Japanese central bank to buy up the stockmarket is just a more direct way for them to command and control that process. The progression is worrying as they already own more than a third of the JGB market so after they ramp up on equities will it indeed be housing next and who know what after that?

    • Hi Redshift

      The October 1987 move was a disastrous piece of can-kicking was it not? After all the Japanese equity and property markets began their plunge and kicked off the lost decade(s) only 2 and a bit years later. Not the best forerunner for the current action is it?

  8. As you realise, Japan is the first in modernity to deal with demographic implosion. There is no playbook. They are making it up as they go along, and we (especially continentals, but all of us in the West with declining fertility rates and dubious debt loads) should be watching closely, and learning. The transit from 125mm to 85mm people in what will be a short period is/will/shall have a profound effect on domestic asset prices, upon which the edifice of the financial system rests. Had von Mises & Hayek contemplated such a scenario? (this is a real question, my suspicions skeptical). It seems clear under such conditions that nominal asset prices cannot be prescribed to fall meaningfully, unless one seeks the reasonably certain slide into full systemic re-boot, and the [likely unnecessary] impoverishment, dislocation and psychological trauma this brings to nearly everyone. Everything else is on the proverbial table to float nominal asset prices. It is clear that this has implications for the unfettered functioning of some markets, and carries with it it’s own (less disruptive) distributional consequences in addition to the moral hazard you and many commenters highlight. I’d argue that in Japan, this is more sympathetic with the enigma of Japanese power and its unusual social relations, and therefore less risky as such hazards and potential conflicts are the norm presently. These risks will be heightened when introduced into more corrupt and self-interested lands of the west.

    As population declines from 125mm ->85mm, think of the unimaginable asset liquidation entailed in this process. The inexorable sale of stocks and bonds whether from priovate accounts, corporate pensions, insurance companies, GPIF and so forth upon later life and death. Think of the potential for dislocation and the certainty of asset price decline and negative feedback loop leading ton further declines. Think of the discord in a generally harmonious social arrangement that transferring ownership wholesale to foreigners (and the horror and value destruction of Philip Green, Warren Lichtenstein etc.) entail. It’s already happening, but mostly unthreatening passive portfolio investment despite rising foreign ownership. Now, imagine the BoJ is merely warehousing the equity assets as one of many tools employed to prevent nominal asset destruction. It’s not nefarious, despite affronting Austrians and Libertarians. It’s well-and-truly a fight for survival. So pay close attention people before passing too harsh judgment on the BoJ or Japanese authorities: you’re decision makers will be faced with similar conundrums soon….

    • Hi nihoncassandra and welcome to my part of the online world.

      As to your first question I do not know about Hayek or Von Mises but Malthus had published his work on population declines many years before. Of course there are many differences but the concepts existed. As to a re-boot I have a different view to you as I think one is required in both attitudes and reality. For exa mple Abenomics chases growth when a more honest answer would consider that stability would be more sensible. From time to time a 2001 style something wonderful will give a boost but every year not only seems unlikely but is the lost decade story.

      Claiming inflation as growth is mimicking us in the UK as I have analysed today and do not misunderstand me there are plenty of political lies over here too.

      One question I do have in return is in what way you think the West is more corrupt than Japan? Oh and how is the Australian submarine contract being reported?

  9. Shaun, i notice you used “reboot”, all lower case, but the result of large-scale persistent asset price deflation associated with prevaling demographic trends atop existing debt levels assures “SYSTEMIC REBOOT!!!”. I’m all for a little change and evolution, but I ask you to run the thought exercise of the true cascading impacts of hard-money solution of wiping out bank capital, wiping out insurance companies, declinine in economic activity, further erosion of asset prices and it’s negative fiscal impact on an already poor situation impact, eliminating the credit availability to the numerous small business, farmers local jurisdictions …. and to what purpose? To start with a “clean slate”? Revolutions are messy affairs in all spheres and rarely deliver – economically – what they promise.

    IF your problem is merely semantic – i.e. calling nominal price rises “growth”, I ask: what is the harm? Behavioural finance well-understands that people generally have a problem differentiating nominal and real. If politicians are using this to keep the balls in the air, it only marginally harmful, but far from insidious, and hardly the norm.

    I believe the corruption in Japan is far more subtle than in say the US or UK. It is petty privilege, and perpetuating institutional status quo – more often systemic gain and humble parochial gain or maintenance in status. The state may be captured – but for stability which one might call “common purpose”. I think this differs from the western corruption which I see as wholesale capture of the state, or a corporate organization, for unbridled self-interest and privatization of gains. This (to me) is tunnelling and rent-seeking of the worst kind – to avoid regulation of de facto natural monopolies obviously extracting outized returns with negative externalities; to prevent the State from exercising power in the Public interest (e.g. US pharma preventing US Govt from negotiating Rx prices), to use the to State socialize losses while privatizing gains (again Medicaid is good example, as are Educational Loans for bogus for-profit schools), and so forth. It would so shameful for the CEOs or top management in Japan to cart-away anything like the multiples they do in the US or UK (even including Japan Mgmts T&E accounts). Undoubtedly Japan has seen its share (bid rigging amongst construction co’s for public works projects, corporate collusion in specific sectors), I am merely of the opinion that as with most things US, everything is just more outsized and audacious, and cronyism is no exception. Olympus is perhaps the best example (upon which I’ve written a lot).
    In a nutshell, the billion dollar “fraud” at Olympus was not about private gains by the perpetrators (think Autonomy’s misrepresentation to HP), but obfuscation of losses to avoid shame, and risk to “The Company”. I’m not saying this is Good. But I’m saying the CEO (for all his arrogance and stupidity) had the organization’s and hence, the employees, backs. Compare this to a Private Equity strip of a going concern, plundering pensions and cash-flow and its balance sheet, extracting gobs and gobs of value (for themselves) while squeezing real wages of employees and then, dumping the carcasses liabilities upon the PBGC. THAT is what I mean when I say that I believe The west (though mostly Anglo-Saxon) is more corrupt than Japan.

    This post ( explains my view with the rich detail it deserves.

    That a $50bn contract is rife with intrigue should hardly surprise. The point you are trying to make here is cryptic to me.

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