A rising tide lifts some (Japanese) boats: The Bank of Japan’s ETF purchases and their impact on market signals for individual stocks

The Bank of Japan has been the pace-setter among central banks when it comes to purchasing non-government financial securities. It was the first central bank to officially declare that it was buying exchange-traded funds (ETFs) and Japan Real Estate Investment trusts (J-REITs). Since December 2010, the percentage of the Japanese ETF market held by the Bank of Japan has grown exponentially to nearly 70% of the entire market going into the final month of 2020. This has created a class of stocks that enjoy consistent central bank support. How to identify these stocks, and factor their advantage into investment processes and models, is the topic of EPFR’s latest research paper, A rising tide lifts some Japanese boats: The Bank of Japan’s ETF purchases and their impact on market signals for individual stocks.