Published May 22, 2013
The U.S. Federal Reserve's zero interest rate policy (ZIRP) and multiple rounds of quantitative easing (QE) have been rightly blamed on surging stock prices (DIA).
But here's another reason contributing to the rise: Direct investments made into equities by global central bankers, who control $11 trillion in foreign exchange reserves.
A survey of 60 central bankers last month by Central Banking Publications along with Royal Bank of Scotland Group showed that 23% expect to boost exposure to stocks.
The Bank of Japan plans to more than double its investments in stock ETFs (EWJ) by 2014 to 3.5 trillion yen or $35.2 billion.
At the Monetary Policy Meeting held today, here's what the Policy Board of the Bank of Japan decided, by a unanimous vote:
"The Bank of Japan will conduct money market operations so that the monetary base will increase at an annual pace of about 60-70 trillion yen.
The Bank will purchase Japanese government bonds (JGBs) so that their amount outstanding will increase at an annual pace of about 50 trillion yen, and that the average remaining maturity of the Bank's JGB purchases will be about seven years.
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The Bank will purchase exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs) so that their amounts outstanding will increase at an annual pace of about 1 trillion yen and about 30 billion yen respectively."
The BOJ is hardly alone in its craze to own stocks.
Last year, the Bank of Israel purchased stocks for the first time. And other global banks like the Czech National Bank and Swiss National Bank have increased their equity exposure to around 10% of reserves.
For now, the Federal Reserve has limited its asset purchases to government debt and mortgage related securities (MBB). Could it surprise the market by adding U.S. equity purchases (SCHB) to its arsenal?
Round three of QE, which is still going, has the Federal Reserve buying $85 billion per month in long-term U.S. Treasuries (TLT). It will tip the Fed's balance sheet to a record of $4 trillion later in the year.
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