The Bank of Japan is supporting Japanese stocks and country-specific exchange traded funds, helping to cushion falls in the market, with speculators pointing to increased purchases in domestic ETFs on the dip.
Over the past three months, the iShares MSCI Japan ETF (NYSEArca: EWJ) has gained 7.0%. Meanwhile, yen-hedged Japan ETFs, WisdomTree Japan Hedged Equity Fund (NYSEArca: DXJ) and db X-trackers MSCI Japan Hedged Equity Fund (NYSEArca: DBJP), increased 7.8% and 8.0%, respectively.
The Bank of Japan is purchasing ETFs that track the Nikkei Stock Average and the broader Topix index as part of its massive purchasing program to support the economy, reports Megumi Fujikawa for the Wall Street Journal.
Over the first six business days of August, the central bank acquired ¥92.4 billion, or $904.2 million, in domestic stock ETFs, the longest and largest consecutive buying streak since it started purchasing ETFs in December 2010.
“The record amount of ETF buying seen by the Bank of Japan—combined with a hefty rise in the GPIF’s stock allocation—not only serves to hold up the floor for the equities market, it also goes a long way to keeping public support levels for (Prime Minister Shinzo Abe ) respectable,” Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities, said in the article.
Traders have been speculating that the central bank is acquiring ETFs when the Nikkei and Topix dip. Specifically, many believe the BOJ is following a so-called “1% rule” by traders where the central bank acquires ETFs after the Topix index dips 1% in the morning session. The BOJ does not disclose when or why it purchases assets.
The BOJ has stated that it will increase ETF holdings to ¥3.5 trillion by the end of this year, and it held about ¥3.122 trillion as of Aug. 10.