LIVE MARKETS-The BOJ accidentally made $440 billion in stocks

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THE BOJ ACCIDENTALLY MADE $440 BILLION IN STOCKS

Going short Japanese government bonds when the Bank of Japan was buying to cap yields was once a "widow-maker trade". When the BOJ intervenes to prop up the yen, it does so to try to hurt speculators, but it turns out the BOJ pod shop's most successful team might manage equities.

When the BOJ held rates steady last Friday, it also announced it would accelerate the sales of equity exchange-traded funds it had bought from 2010 to 2024.

And this decision, says Masayuki Nakajima, a London-based fixed income strategist at Mizuho, has drawn attention to the enormous unrealised gains it made on its equity holdings.

Against a book value of roughly JPY37 trillion yen ($234.44 billion), the market value of the portfolio has risen to around JPY106 trillion , implying unrealised gains of approximately JPY69 trillion, or $440 billion.

That's not bad, is it?

"Of course, Nakajima says, the BoJ did not buy ETFs to generate investment returns. The purchases were part of its monetary easing programme and were intended to reduce risk premia.

"Nevertheless, judged purely by the investment outcome, the BoJ has benefited enormously from the rise in Japanese equities over the past 15 years and has, in hindsight, become an extraordinarily successful equity investor."

He says under the new arrangements the annual disposal gains, will be equivalent to roughly $10 billion, or 0.25% of Japan's GDP.

This isn't a game-changer for Japan's finances, but it'll help.

And, as Nakajima says, is also "a fascinating unintended consequence of unconventional central bank policy."

(Alun John)

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($1 = 157.8200 yen)