Monday, 21 December 2015

BoJ plans purchase of ETFs that don't exist

The Bank of Japan unveiled new measures to stimulate the Japanese economy on Friday.

The measures include lengthening the average maturities of Japanese government bonds it buys to seven to 12 years from seven to 10 years currently, establishing a new programme to buy 300 billion yen in ETFs that target companies investing “proactively in physical and human capital”, and increasing the maximum amount of real-estate investment trusts it can buy to 10 percent of each issue from five percent currently.

Investors were not too impressed by the move. While the Nikkei 225 initially climbed as much as 2.7 percent after the announcement, it subsequently reversed course to close down 1.9 percent.

Indeed, as a Bloomberg article noted:

Markets were roiled Friday after the Bank of Japan unveiled measures including purchasing exchange-traded funds that track companies which are “proactively making investment in physical and human capital”...

The only problem is such ETFs have never been made in Japan...

Realistically, trying to encourage more capital investment is always going to be a tall order for Japan. Such investments primarily work by leveraging the workforce. The problem is that Japan's labour force is shrinking and the country is ageing rapidly.

According to the National Institute of Population and Social Security Research, Japan’s population is set to drop by more than 700,000 a year on average between 2020 and 2030, by which time almost a third of the population will be 65 or older.

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