It is party time at The Tokyo Whale as the Japanese stock market surges

Sometimes you have to wait for things and be patient and this morning has seen an example of that. If we look east to the and of the rising sun we see that it has been a while since it was at the level below.

Japan’s Nikkei 225 stock index closed on Friday at its highest level since November 1991 as individual investors bought up the shares of blue-chip companies at the expense of smaller, more speculative groups. The benchmark, which has been described by some analysts as a “barbarous relic” but remains the favourite yardstick of Japanese retail investors, was propelled to its 29-year high by resurgent stocks like Sony, SoftBank and Uniqlo parent Fast Retailing.

That is from the Financial Times over the weekend and its Japanese owners will no doubt be pointing out that it should be covering this morning’s further rally. – Japan stocks were higher after the close on Monday, as gains in the Paper & PulpRailway & Bus and Real Estate sectors led shares higher.

At the close in Tokyo, the Nikkei 225 rose 2.12% to hit a new 5-year high.

Curiously does not seem to have spotted that we have not been here for much longer than 5 years. The market even challenged 25,000 but did not quite make it.

There was something familiar about this but also something new as the FT explained.

Mizuho Securities chief equity strategist Masatoshi Kikuchi said that the Nikkei’s move was driven by individual investors using leverage to magnify their potential returns and losses — a much larger and more active group since the Covid-19 pandemic restricted millions to their homes and prompted many to open online trading accounts.

The Japanese are savers and investors hence the Mrs. Watanabe stereotype but the gearing here reminds us of the Robinhood style investors in the US as well.

The Tokyo Whale

As ever if we look below the surface there has been much more going on and we can start at the Bank of Japan which regular readers will be aware has been buying equities for a while now.Also it increased its purchases in response to the Covid-19 pandemic in two ways. It did not just buy on down days and it also increased its clip size.

For the time being, it would actively purchase ETFs and J-REITs so that their amounts outstanding would increase
at annual paces with the upper limit of about 12 trillion yen and about 180 billion yen, respectively. ( Bank of Japan Minutes)

In October it bought 70 billion Yen’s worth on six occasions and on three days in a row from the 28th. If we recall that world stock markets were falling back then we find ourselves noting the most extreme version of a central bank put option for equity markets we have seen so far. Indeed this is confirmed in the Minutes.

With a view to lowering risk premia of asset prices in an appropriate manner, the Bank might increase or
decrease the amount of purchases, depending on market conditions.

What is appropriate and how do they decide? This morning’s summary of opinions release suggests that some at the Bank of Japan are troubled by all of this. The emphasis is mine.

It is necessary to continue with active purchases of exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs) for the time being. However, given that monetary easing is expected to be prolonged, the Bank should further look for ways to enhance sustainability of the policy measure so that it will not face difficulty in conducting such purchases when a lowering of risk premia of asset prices is absolutely necessary.

As “monetary easing” has been going on for around 3 decades now it has already been very prolonged. I wonder on what grounds they would regard it as “absolutely necessary” to reduce the value of its large equity holdings. As of the end of October it had bought some 34,771,759,339,000 Yen of it.

Rather curiously the Bank of Japan share price has not responded to the rise in value of its equity holdings. Yes it was up 1.9% today to 26,780 but that is a long way short of the 220,000 or so of November 1991.

The Bank is a juridical person established based on the Bank of Japan Act. Its stated capital is 100 million yen. The issued share capital is owned by the government (55 percent) and the private sector (45 percent).


There is something of an irony in this landmark being reached after Prime Minister Abe has left office. Because as well as the explicit equity buying effort above there were a lot of implicit boosts for the equity market from what became called Abenomics. Back in November 2012 I put it like this.

Also the Japanese stock market has had a good couple of days in response to this and has got back above the 9000 level on the Nikkei 225 at a time when other stock markets have fallen.

As you can see the market has been singing along to Chic in the Abenomics era.

Good times, these are the good times
Leave your cares behind, these are the good times
Good times, these are the good times
Our new state of mind, these are the good times
Happy days are here again
The time is right for makin’ friends.

We have seen interest-rates reduced into negative territory and the Bank of Japan gorge itself on Japanese Government Bonds both of which make any equity dividends more attractive. Also there was the Abenomics “arrow” designed to reduce the value of the Japanese Yen and make Japan’s exporters more competitive. Often the Japanese stock market is the reverse of that day’s move in the Yen but in reverse so Yen down means stick market up.

The latter gave things quite a push at first as the exchange-rate to the US Dollar went from 78 into the mid 120s for a while. However in more recent times the Yen has been mimicking The Terminator by saying “I’ll be back” and is at 103.60 as I type this. There is a lot of food for thought here on the impact of QE on a currency but for our purposes today we see that the currency is weaker but by much less than one might have thought.


The Japanese stock market has recently received boost from other influences. For example what is becoming called the “Biden Bounce” has seen the Nikkei 225 rally by around 8% in a week. Also this morning’s data with the leading indicator for September rising to 92.9 will have helped. But also we have seen an extraordinary effort by the Japanese state to get the market up over the past 8 years. In itself it has been a success but it does raise problems.

The first is that Japan’s economic problems have not gone away as a result of this. Even if we out the Covid pandemic to one side the economy was struggling in response to the Consumption Tax rise of last autumn. The official objective of raising the inflation rate has got no nearer and the “lost decade” rumbles on. The 0.1% have got a lot wealthier though.

Then there is the issue of an exit strategy, because if The Tokyo Whale stops buying and the market drops there are two problems. First for the value of the Bank of Japan’s holdings and next for the economy itself. So as so often we find ourselves singing along with Elvis Presley.

We’re caught in a trap
I can’t walk out
Because I love you too much, baby

Meanwhile on a personal level I recall these days as I worked for Barings pre collapse.

Baring Nikkei options in the money now! ( @WildboyMarkets)

Indeed I had an indirect role as there were 4 of us on the futures and options desk and we feared trouble and left. So they promoted Nick Leeson from the back office and what happened next became famous even leading to a film.



15 thoughts on “It is party time at The Tokyo Whale as the Japanese stock market surges

  1. Hi Shaun, were you based in Singapore? If so you must have been there at the same time as myself.

    I missed the photo opportunity of a lifetime after Barings collapsed. A few friends and I took my boat over to one of the islands off Singapore for a BBQ just after the whole house of cards collapsed. Moored in the bay was a gin palace called ‘Baring Up’ and on it were Baring’s bankers partying like there was no tomorrow. What a photo that would have been for the media! But I didn’t have a camera with me!

    • Hi Pavlaki

      Sadly not 😦 I would have liked to see Singapore and one of my friends is there now and seems to be enjoying himself. He got married a couple of summers ago and he and his new wife went to work in Singapore.

      I never got to enjoy the Barings yacht which was mostly around Hong Kong as in that phase I was in the office at Tower Hill not far from the Minories pub. Exciting times though in many ways and a lesson in making a mess of quite a success.

      • Hong Kong was a lot of fun as well and I visited often. In many ways it was more authentic Asia than Singapore.
        I still have a T shirt I won at a pub quiz in Joe Bananas!

  2. Hi Shaun,
    It does seem a life time ago, but I can just about remember when the stock market was:
    1. Not owned even in part by any CB
    2. There as a barometer of future growth expectations for companies and economies
    3. Often went in the opposite direction to bonds if interest rates moved
    4. There to supply capital to deserving companies
    I know that there always have been speculators and fraudsters (see The way we live now by Trollope), but has there ever been an era when it is the policy to use the CB’s printing press to prop up every asset going (shares and bonds and property, mainly)?
    I doubt whether anyone has the faintest idea what shares or bonds are really worth, as the largest purchasers aren’t interested in value, but propping up a system/keeping the plates spinning/ putting off the evil day (pick your metaphor).
    I can also remember Barings going bust btw, as I was at Kleinwort Benson then and various people tried to get us to buy it rather than let it go bust, so I saw a lot of the internal Barings info. The lack of understanding on the Barings board was simply comical – the Singapore “business” was apparently making so much money that it needed monthly top-ups of cash until they sent the whole of the net assets of the bank to Singapore. No-one, and I mean no-one, thought to ask why, if it was always so profitable, it needed more and more cash to stay afloat.

  3. hello Shaun,

    Well the BoJ is , in Duke Nukem words , on difficulty level ” piece of cake ! ” , when they get to level ” Damm I’m Good ! ” then we can worry !!


    nobody steals my popcorn – and lives !

    • Hi Forbin

      After a while I guess it just all seems normal in Japan. If foreigners sold the Yen in response to all the (Q)QE few would be happier than the Bank of Japan. As it happens the Yen was sold pretty hard today and lost around 2 big figures to 105.40 so it has been a win in most directions for the BoJ.

      In terms of trading its late October equity purchases look really rather inspired. Of course the catch comes should it try to sell any of it,

    • Hi Steve and thanks for the link.

      You are right that it is interesting but of course we have very little way of knowing how accurate it is? Stock Markets would be lower but bu how much is a guessing game I think.

  4. Shaun, as you were in the futures game all those years ago, I’m sure you are aware of the significance of the Nikkei breaking through 24,000, which has been the line in the sand for decades now, having seen this latest splurge to 25,538 and the fact it is based purely on central bank manipulations the number now is meaningless since central banks can now just move markets to where they want them to go, however, as you say once they decide to stop playing this game of russian roulette and as I liken it to, pull the lever to the trap door, everyone is then stuck on the wrong side of the trade and will try to exit at the same time.

    Perhps that is the plan for the next stage is to destroy everyone’s savings and pensions? Or will they be satisfied with just removing Trump and stopping BREXIT for now?
    Who knows?

    I think the timing of this vaccine today stinks to high heaven, just after the Biden “win”, why do I think the vaccine was already known about and the news was suppressed in case it gave a boost to Trump’s chance of re-election?

    • Hi Kevin

      Speaking of manipulated markets it looks as though the Bank of Japan has plenty of work ahead tonight in the Japanese Government Bond ( JGB ) market.

      “The Bank will purchase a necessary amount of JGBs without setting an upper limit so that 10-year JGB yields will remain at around zero percent. ”

      How far will they be willing to let the market go?

  5. Off topic stock markets in UK, US, Europe had quite a bounce today up circa 5% or so with a positive showing of a corona vaccine.

    The markets got a real shot of adrenalin, but history has taught us to be careful of being sucked in on news, the damage has already been done to various economies and many companies will still go bust before the vaccine gets rolled out to everyone.

    I can understand why the markets have bounced as they have with interest rates so low with the possibility of less damage to the economies worldwide, once a antidot gets rolled out companies profits in general should improve.

    All this will take time imo though and I have seen many companies share prices up in double digits today in many a risky small company, even Llyoyds bank was up 12.5% today.

    I suspect some of these rises will fizzle out soon myself once reality kicks in the economies will take time to get back to where they were pre pandemic.

    The market does tend to look forward than back and it will be interesting to watch how the news today affects markets the coming days.

    • Hello Peter,
      I particularly agree with your last two sentences.

      The FTSE is still down c 20% from the two consistent levels reported in the last 12 months; not that there’s much linkage to the real economy anyway. I can’t believe that the continuing impact of Cov-19 and Brexit will not have a large negative pull on the UK economy for years to come.
      My main strategic concerns are (1) how much more protectionist many major economies (especially Western ones) might become as they seek to placate their electorates in off-setting the otherwise natural flow of Globalisation Eastwards, and (2) how much longer private debt can support any meaningful economic sustainability/recovery; accepting that even where all major countries flood e-debt to keep the ponzi going, the music stops at some point and the weaker countries fold first; I suspect we (UK) are especially susceptible.

      Enough gloom; the potential Cov-19 vaccines about to be rolled out is a huge plus, so I’ll finish on that bright note.

      Regards and good health,

    • Hi Peter

      Unless there is a turn in sentiment the Nikkei 225 index will open comfortably above 25,000 tonight. As to the banks they have had so many bad days in recent times that a 12% rise does not take them far. Perhaps the UK ones liked the fact that the UK bond market no longer has any negative yields.

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