Interference in the stock market by Japanese government shows wary signs

Much of this year's economic debate has centred around global central banks and more so those operating in advanced economies who have taken to exhausting the limits of its policies to new extremes in introducing bold yet questionable moves in shifting interest rates below zero for the first time in recorded history in an effort to curb a decline in economic activity.

Besides this, another crucial function of monetary policy is the asset sales and purchases that take place as part of the process of decreasing or increasing the money supply respectively. However over the years since the Financial Crisis central banks have announced numerous rounds of purchases all of which has created a shortage of appropriate instruments to use when stimulating.

The Bank of Japan has faced this dilemma for some time and has resulted in it now owning over half of the listed Japanese Equity ETFs. Not only is this worrisome but the continuation of this policy measure provides doubt concerning the true valuation of equities considering the artificial demand stemming from these purchases.  

Furthermore Japanese equities aren't only finding favour from the BOJ but also the Government Pension Investment Fund of Japan, the world's largest pension fund. The fund shifted it's strategy almost two years ago by opting to focus it's accumulation into equities whilst squeezing out bonds, a decision that was largely influenced by Shinzo Abe's government who saw the frightening outflows from Japanese equity markets.    

Bank of Japan and Government Pension Investment Fund own largest shares in 474 of ~1970 cos. listed on Tokyo Stock Exchange: Nikkei

— zerohedge (@zerohedge) August 28, 2016

However the fund made headlines for all the wrong reasons recently when it reported a loss of $52 billion for the quarter ended June saying it had been affected by the aftershocks of Brexit but more importantly the strengthening of the Yen, a factor that's been troubling government's for some time, leaving many wondering if the government's efforts to prevent a fresh crisis had failed in its entirety.

Combine the two organisations stakes together and they register as the largest stockholder in approximately 25% of all companies listed on the Tokyo Stock Exchange.

There can only be one conclusion when confronted with the facts, Japanese citizens don't share the same confidence in the country or its economy as its government does. If they did the government wouldn't find the necessity to hold such a significant stake to hide the truth...

Consider for a moment the scale with which an unwinding of such investment would demand from interested buyers.

Perhaps an economy that doesn't suffer from a lack of structural reform that subsequently weighs down efforts by government to turnaround the situation yet falters the economy at every site of a recovery.