First of all, this news is coming out late because I sought to verify the incoherent numbers provided in the original report with the journalist of Bloomberg. Unfortunately she did not answer my queries, so I’m providing you the news “as is” with whatever incoherence in the numbers.
What we learn is that the Japanese had the plan of creating a real and official “Plunge Protection Team” (PPT), with the mission to buy up to 50 trillion Yen in stocks. This program, to last until 2012 would have created a special entity to buy stocks and ETF’s.
Under the plan, a new stock buying entity would be created with the backing of the government with funds for the purchase to be procured from the Bank of Japan and private-sector financial institutions. In the prior version, the government was considering issuing gov’t-guaranteed (against losses to investors) bonds convertible into the underlying index ETFs. The entity will have a sunset clause, ostensibly disbanding after selling off the stocks it purchases in April 2012 or later. Under the final proposed version, the government would stand to receive any capital gains as well as shoulder any losses.
The condition for purchases of Japanese stocks by the entity would be “when the market’s price-setting mechanism is believed to be under serious stress and posing a potential threat to the economy”, such as cases where heavy (foreign) selling severely disrupts the supply-demand balance for stocks and indicators such as price-to-book ratios reach “abnormal” levels.
Bloomberg then announced on July 21 that this plan was being scrapped in the face of the recovery of the markets:
Japan’s government will scrap a bill that would set aside 50 trillion yen ($533 billion) to buy shares from the market after Prime Minister Taro Aso dissolved the lower house today.The bill was submitted to parliament on April 27 as part of Aso’s record 15.4 trillion yen stimulus package. Deliberations on the law haven’t taken place because the opposition Democratic Party of Japan, which controls the upper house, is against the measure.
Finance Minister Kaoru Yosano indicated today there’s no need to pass the legislation because stocks have rebounded. The Nikkei 225 Stock Average has gained more than 30 percent since reaching a 26-year low on March 10.
“The plan was a good, grand project, but it was something we talked about when the Nikkei was around 7,000 yen,†Yosano said at a press conference in Tokyo today.
(…)
Under the plan, the government would set up a state-owned entity to buy exchange-traded funds, which are instruments that track stock indexes, as well as equities listed in the indexes and related derivatives for three years.
Apparently the 50 trillion Yen plan was included in a 15 trillion Yen plan. I didn’t understand the discrepancy and still do not. If anybody got some idea on how this worked, you are welcome to comment.
However, it is worth noticing that before this plan was even considered, the Bank of Japan (BOJ) had enacted a plan to buy JPY 1 Trillion in shares held by financial institutions and committed itself not to sell these shares before
Thus, aside from its regular purchases of JGBs, the BoJ has been
purchasing private securities (commercial paper and asset-backed
commercial papers, or ABCPs, since January; corporate bonds
starting in March). Also, on February 3rd, it announced its intention
to buy JPY 1 trillion in shares held by financial institutions, at
market price, up through April 2010, as it had already done
between November 2002 and September 2004 (for an amount of
nearly JPY 2 trillion), in an effort to limit their losses and
depreciation in the value of assets, resulting from the collapse of
the markets. The goal is to support financial institutions in their
efforts to reduce the risks inherent in holding shares, and thereby
ensure the stability of the financial system. The BoJ’s purchases
involved stocks of companies rated “BBB-†or higher; it will not put
them back on the market until the end of March 2012.
Hence, PPT and similar programs are well-known in Japan as they were also used during the tech bubble crisis. However, the “cushioning” of the markets by the BOJ did not stop the economy from suffering in Japan.
And right now, the Japanese economy is suffering especially from having a whole generation of young workers having to live in precarious conditions and no appropriate training: the “freeters” (contraction of “free” and “Arbeiter”, worker in German):
Paying 1,400 to 2,400 yen ($12-$20/£6-10/EU8.8-14.7)) for a night in a central Internet cafe, each cubicle provides a reclining seat or sofa, a blanket, computer and clothes hanger. Free soft drinks, TV, comics and Internet access are included — and prices are cheaper than those of Japan’s famous “capsule hotels,” where guests sleep in plastic cells.
There is no official data on the cyber cafe homeless. Japan’s Welfare Ministry plans a wider study on the phenomenon, according to a newspaper report, but in the meantime, it is hard to gauge the scope of the problem or its social impact. Anecdotal evidence suggests that many are freeters in their mid-to-late-twenties, who stay in a net cafe for a couple of months before settling for a more permanent housing solution.
Those who are older, poorer, with fewer chances of escaping their drifting lifestyle, and sometimes too embarrassed to return home, find themselves at the very bottom of cyber-society. They congregate in run-down Tokyo suburbs such as Kamata, renting poorly ventilated, smoke-filled cubicles with reclining seats for 100 yen an hour.
“It’s very uncomfortable. You can’t really sleep,” said one Kamata cafe guest who preferred not to be named.Those who are poorer still, both homeless and workless, live in the ‘cardboard cities’ of the major towns.
The conclusion is self-evident: PPT’s may pump up the market, but they do not help to alleviate the pain of the economy, contrary to what is habitually thought. It is mostly a plan by the elite to preserve the gains of the elite. In that, PPT’s are fundamentally contrary to the ideals of a democratic and equal State.
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