The Bank of Japan has become one of the biggest shareholders in the Japanese stock markets, according to the latest research by Bloomberg.

The Nikkei 225 has fallen 8.4 percent this year, alongside a series of disappointing economic figures, giving many investors cause for concern; in an effort to stimulate Japan’s flagging economy, the Bank of Japan have been investing heavily in the Japanese stock index. Just how heavily, however, may raise eyebrows; the central bank now owns more Japanese blue-chips than BlackRock, the world’s largest money manager, and have become one of the top 10 shareholders in around 90 percent of the Nikkei 225 Stock Average.

Whilst central banks investing in the markets is a key stimulation measure, the BoJ’s growing influence in stocks risks distorting valuations and undermining efforts to improve corporate governance. Later this week, the central bank are expected to accelerate their ETF purchase programme to an annual rate of ¥7 trillion – meaning it could become the biggest shareholder in about 40 of the Nikkei 225’s companies by the end of 2017.

Whilst lawmakers have criticised the move, it has been repeatedly defended by governor Haruhiko Kuroda, meaning it is likely to continue. State intervention in stock markets has worked for several countries, but too much can raise stock valuations to dangerous levels – now is the time for investors to cross their fingers and hope that Japanese stock market isn’t heading for trouble.

25/04/2016