Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

HK Type 4 license through Ballingal Investment Advisors Ltd. ("BIA" or "BIAL")

BACKGROUND
I have 20+yrs experience in Asia doing alternative strategies (i.e. non-delta1 non long-only) in fixed income, equity derivatives, and activist/catalyst/event-driven and long-short equity strategies with most of that time spent managing money. 

4 years in fixed income macro, 8 years running internal hedge fund and 4yrs investment banking at Citi in Japan, 3 years running an Asia multi-strat portfolio at a hedge fund, 4+yrs as an independent special situations analyst.

Pan-Asia Catalysts/Events

Quantifying the BOJ Change in ETF Policy: Assessing Future ETF Buying Methodology

Quantifying BOJ Change in ETF Policy: Affecting Single Stocks

Down 24% From February Peak, But Still Has a Long Way to Go Before The Longs Get Back On Board

JAPAN FLOW:  BOJ ETF Exit Fretting Is A Thing But Shouldn't Be. BOJ Buys Slower But Still Bigly

JAPAN FLOW:  Foreign Investor Flows Catching Up ('Need' Vs 'Want' into FY-End)

Gravity Works As WeWork Doesn't; Now Plan B

JAPAN FLOW:  Foreign Investor Flows Still Matter (Redux, Reduxed) - Playing Catchup

Quiddity Advisors

Event-Driven

<p>Whether it be global rate markets expecting more inflation, inflation becoming visible, or US stimulus payments and China's not unimpressive economic results last year, or even a rebounding dollar/yen rate and better-than-expected Japanese corporate earnings, the BOJ has decided now that it can step mostly back. </p><p>The Nikkei newspaper <a href="https://asia.nikkei.com/Economy/BOJ-to-widen-interest-rate-target-range-to-support-bank-profits" target="_blank" rel="noopener">reported</a> at noon Japan time today that the Bank of Japan would increase the range of fluctuation permitted around its long-term interest rate guidance policy to 0.25% plus or minus vs the current center rate of 0.20%. </p><div class="content-highlight">
<p>The bigger news in terms of markets is likely to be the news about ETFs. The BOJ has had a "Target ETF Purchasing Rate" of ¥6 trillion/year for the past few years though actual purchasing has fluctuated up and down with demand (and famously briefly popped last March in the covid-crash).</p>
<p>The new guidance, according to the Nikkei, will be that the ¥6 trillion/year target will be abolished and the BOJ will only step in when markets get turbulent. </p>
</div><div>
<p>The subject of the BOJ stopping to buy ETFs has been a repeated question of interest in Parliament when Mr Kuroda makes an appearance, and any number of People With Important Thoughts have opined on the issue, saying the BOJ should stop buying stocks.</p>
<p>When Mr Kuroda was in front of parliament four months ago in mid-November, answering questions about when the BOJ would stop and what it would do to stop buying, he was quite clear with his answer. From a Reuters <a href="https://www.reuters.com/article/japan-economy-kuroda-etf-idUST9N2GT02I" target="_blank" rel="noopener">note</a> ...</p>
</div><div><blockquote>
<p>The BOJ already buys ETFs “quite flexibly” and can reduce purchases when the market risk premium is not rising, Kuroda told parliament.</p>
<p>“If inflation hits our 2% target and an exit from our massive stimulus programme comes into sight, there will certainly be debate on how to end our ETF buying. But it’s premature to do so at this stage.”</p>
</blockquote></div><div>
<p>Kazuo Momma, who used to be assistant governor at the BOJ and is now an economist at the Mizuho Research Institute had recently criticized the entire program, saying it is not something central banks should be doing. </p>
<blockquote>
<p>"The BOJ's ETF buying started out as an emergency step. It's not something central banks should be doing in the first place," he told <a href="https://www.marketscreener.com/quote/currency/EURO-JAPANESE-YEN-EUR-4592/news/Ideas-emerge-for-alternative-ways-to-unload-Bank-of-Japan-s-huge-ETF-holdings-31827846/" target="_blank" rel="noopener">Reuters</a> [in response to the Kuroda Diet sessions].</p>
<p>"At the very least, the BOJ should stop buying ETFs except for when market sentiment sours enough to inflict severe damage to the economy."</p>
</blockquote>
<p>After its December meeting, the BOJ said it would be conducting a policy review and the official review is expected tomorrow after the MPC decisions.</p>
<p>The Nikkei has jumped the gun. One assumes they do so with a fair bit of insider knowledge. But this policy looks like it came from Kazuo Momma.</p>
<p>But this should not come as that much of a surprise. </p>
<p>The chart below can be separated into three sections. The thick red line stepping up is the official policy purchase rate line and the blue lines around it are actual BOJ purchases. The red and yellow dots (with the thin red line average) are the AM session down performance on days when the BOJ does NOT buy, showing that on average, the BOJ is letting larger falls go by without stepping in, and the green line is TOPIX.</p>
<section class="figure"><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/195/215/original/Screenshot+2021-03-18+at+1.31.06+PM.png?1616045488" class="editor-image img-responsive" data-smartkarma-image-id="195215"></figure></section><p>This tells you the BOJ has been less present than for a long time, and has stepped back. The BOJ has been virtually tapering for months. The fact that they stepped in early and in size last March tells you what they will do if things get turbulent.</p></section><p>The question now is what does that change. </p>
<p>That and understanding the impact of the cessation of buying on different stocks below the fold. </p>
</div>

Whether it be global rate markets expecting more inflation, inflation becoming visible, or US stimulus payments and China's not unimpressive economic results last year, or even a rebounding dollar/yen rate and better-than-expected Japanese corporate earnings, the BOJ has decided now that it can step mostly back. The Nikkei newspaper reported at noon Japan time today that the Bank of Japan would increase the range of fluctuation permitted around its long-term interest rate guidance policy to 0.25% plus or minus vs the current center rate of 0.20%. 
The bigger news in terms of markets is likely to be the news about ETFs. The BOJ has had a "Target ETF Purchasing Rate" of ¥6 trillion/year for the past few years though actual purchasing has fluctuated up and down with demand (and famously briefly popped last March in the covid-crash).
The new guidance, according to the Nikkei, will be that the ¥6 trillion/year target will be abolished and the BOJ will only step in when markets get turbulent. 

The subject of the BOJ stopping to buy ETFs has been a repeated question of interest in Parliament when Mr Kuroda makes an appearance, and any number of People With Important Thoughts have opined on the issue, saying the BOJ should stop buying stocks.
When Mr Kuroda was in front of parliament four months ago in mid-November, answering questions about when the BOJ would stop and what it would do to stop buying, he was quite clear with his answer. From a Reuters note ...

The BOJ already buys ETFs “quite flexibly” and can reduce purchases when the market risk premium is not rising, Kuroda told parliament.
“If inflation hits our 2% target and an exit from our massive stimulus programme comes into sight, there will certainly be debate on how to end our ETF buying. But it’s premature to do so at this stage.”

Kazuo Momma, who used to be assistant governor at the BOJ and is now an economist at the Mizuho Research Institute had recently criticized the entire program, saying it is not something central banks should be doing. 

"The BOJ's ETF buying started out as an emergency step. It's not something central banks should be doing in the first place," he told Reuters [in response to the Kuroda Diet sessions].
"At the very least, the BOJ should stop buying ETFs except for when market sentiment sours enough to inflict severe damage to the economy."

After its December meeting, the BOJ said it would be conducting a policy review and the official review is expected tomorrow after the MPC decisions.
The Nikkei has jumped the gun. One assumes they do so with a fair bit of insider knowledge. But this policy looks like it came from Kazuo Momma.
But this should not come as that much of a surprise. 
The chart below can be separated into three sections. The thick red line stepping up is the official policy purchase rate line and the blue lines around it are actual BOJ purchases. The red and yellow dots (with the thin red line average) are the AM session down performance on days when the BOJ does NOT buy, showing that on average, the BOJ is letting larger falls go by without stepping in, and the green line is TOPIX.
This tells you the BOJ has been less present than for a long time, and has stepped back. The BOJ has been virtually tapering for months. The fact that they stepped in early and in size last March tells you what they will do if things get turbulent.The question now is what does that change. 
That and understanding the impact of the cessation of buying on different stocks below the fold. 


Changes In BOJ ETF Buying - Which Stocks Impacted and How?

Softbank Group

Changes In BOJ ETF Buying - Which Stocks Impacted and How?