Good performance over the past month among Japanese equity indices suggests that the Bank of Japan’s unorthodox moves to buy assets is having an impact.
The decision to buy assets was announced in October and is intended to help Japan defeat
deflation within two years. The first step was clarified on November 5, when the BoJ announced its purchasing schedule.
The ¥5 trillion ($61 billion) plan includes buying real-estate investment trusts, exchange-traded funds and corporate bonds, as well as the more orthodox government securities (see below for details).
Since then, the Nikkei 225 has staged a rally, rising by 7.06%, making it the leading stock market for the month of November.
In contrast, the Hang Seng Index has lost -3.07% of its value and the S&P/ASX200 Index has lost -1.91%.
Stock indices in the UK, France and Spain have also declined, while the S&P500, Dow Jones Industrial Average and Nasdaq recorded modest gains.
Within Japan, Reits have outperformed the Topix in November (see image), jumping from a low of 303 at the beginning of November to 366 by the end of the month, a gain of over 20%. The Topix enjoyed a 5% rise in the same period.
Although it is difficult to say the BoJ’s actions are responsible for these gains (there is a history of asset prices seasonally trending upward this time of year) the news should be reassuring to BoJ officials and to investors hoping to see Japan escape its 15-year struggle with deflation.
The Bank of Japan’s asset-purchasing programme is as follows:
- JGBs, 1-2 year maturity, ¥1.5 trillion, bought in November
- Treasury Bills, ¥2 trillion, bought in November
- Bonds, 1-2 year maturity, BBB or better, ¥500 billion, to begin in December
- Commercial paper, a-2 or better, ¥500 billion, to begin in December
- ETFs on Topix of Nikkei, ¥450 billion, to begin mid-December
- Reits, double-A or better, ¥50 billion, to begin mid-December