Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Japan Petroleum Exploration / Event-Driven

<p>When the <a href="https://www.smartkarma.com/entities/inpex-corp" target="_blank" data-smartkarma-citation="entities:20665:1" rel="noopener">Inpex Corp (1605 JP)</a> buyback programme was announced last Friday, and the ToSTNeT-3 buyback was announced with the footnote that <a href="https://www.smartkarma.com/entities/japan-petroleum-exploration" target="_blank" data-smartkarma-citation="entities:12219:1" rel="noopener">Japan Petroleum Exploration (1662 JP)</a> intended to sell shares to the tune of ¥50bn, I wrote about the outlook post ToSTNeT-3 buyback for both companies in...</p><ul>
<li>
<a href="https://www.smartkarma.com/insights/inpex-buyback-offers-2-opportunities-inpex-1605-jp" target="_blank" data-smartkarma-citation="insights:60204" rel="noopener">INPEX Buyback Offers 2 Opportunities - INPEX (1605 JP)</a> and</li>
<li>
<a href="https://www.smartkarma.com/insights/inpex-buyback-offers-2-opportunities-japex-1662-jp" target="_blank" data-smartkarma-citation="insights:60225" rel="noopener">INPEX Buyback Offers 2 Opportunities - JAPEX (1662 JP)</a> </li>
</ul><p>In the piece on JAPEX, I noted that the combination of higher oil prices since the August announcement of expected losses this year, the price of crude and natgas was higher so the actual losses would likely be lower than forecast, and the sale of half JAPEX' stake in INPEX would lead to a near-record amount of excess non-operating capital (net cash+securities, etc) against a sharp reduction in cash burn at its Canadian units, which were to be sold. </p><p>I recommended buying JAPEX suggesting the best way to apply that cash was a buyback. </p><p>After the INPEX buyback, JAPEX <a href="https://www.japex.co.jp/uploads/pdf/JAPEX20211108_INPEXStocksTrade_e.pdf" target="_blank" rel="noopener">announced</a> that the sale of INPEX shares would mean booking extraordinary income of JPY 39.8bn. This was to be expected. </p><p>Yesterday, JAPEX announced H1 results, with...</p><ul>
<li>H1 OP at ¥9.54bn against the 10 August full year estimate at ¥11.9bn.</li>
<li>H1 Ordinary Profit (including equity affiliate income) at ¥19.35bn vs full-year estimate on 10 August of ¥26.16bn. </li>
<li>H1 Net Profit of -¥119.7bn vs full-year estimate of -¥114.0bn. This was expected because the full hit of securities sales losses (selling JACOS, etc), writedowns, and additional contingent liabilities on debt guarantees associated with the asset sales) would hit in H1, whereas H2 would see additional profit.</li>
</ul><p>Higher crude and gas prices and <em>slightly</em> higher USD/yen helped, and the company upped its full-year forecast for OP (up another 40%) and Ordinary Profit (up another 9%) yet again. With crude at current levels or hedge-able levels, those two numbers are light. The company also raised its net profit estimate for the full year to March 2022 from -¥114bn to -¥69.8bn, adding ¥44bn compared to the ¥39.8bn extraordinary gain (pre-tax) from the INPEX sale. </p><p>JAPEX also announced a buyback. Bingo.</p><p>More below the fold.</p>

When the Inpex Corp (1605 JP) buyback programme was announced last Friday, and the ToSTNeT-3 buyback was announced with the footnote that Japan Petroleum Exploration (1662 JP) intended to sell shares to the tune of ¥50bn, I wrote about the outlook post ToSTNeT-3 buyback for both companies in...

INPEX Buyback Offers 2 Opportunities - INPEX (1605 JP) and

INPEX Buyback Offers 2 Opportunities - JAPEX (1662 JP) 
In the piece on JAPEX, I noted that the combination of higher oil prices since the August announcement of expected losses this year, the price of crude and natgas was higher so the actual losses would likely be lower than forecast, and the sale of half JAPEX' stake in INPEX would lead to a near-record amount of excess non-operating capital (net cash+securities, etc) against a sharp reduction in cash burn at its Canadian units, which were to be sold. I recommended buying JAPEX suggesting the best way to apply that cash was a buyback. After the INPEX buyback, JAPEX announced that the sale of INPEX shares would mean booking extraordinary income of JPY 39.8bn. This was to be expected. Yesterday, JAPEX announced H1 results, with...
H1 OP at ¥9.54bn against the 10 August full year estimate at ¥11.9bn.
H1 Ordinary Profit (including equity affiliate income) at ¥19.35bn vs full-year estimate on 10 August of ¥26.16bn. 
H1 Net Profit of -¥119.7bn vs full-year estimate of -¥114.0bn. This was expected because the full hit of securities sales losses (selling JACOS, etc), writedowns, and additional contingent liabilities on debt guarantees associated with the asset sales) would hit in H1, whereas H2 would see additional profit.
Higher crude and gas prices and slightly higher USD/yen helped, and the company upped its full-year forecast for OP (up another 40%) and Ordinary Profit (up another 9%) yet again. With crude at current levels or hedge-able levels, those two numbers are light. The company also raised its net profit estimate for the full year to March 2022 from -¥114bn to -¥69.8bn, adding ¥44bn compared to the ¥39.8bn extraordinary gain (pre-tax) from the INPEX sale. JAPEX also announced a buyback. Bingo.More below the fold.

<p>On Friday, as discussed in <a href="https://www.smartkarma.com/insights/inpex-buyback-offers-2-opportunities-inpex-1605-jp" target="_blank" data-smartkarma-citation="insights:60204" rel="noopener">INPEX Buyback Offers 2 Opportunities - INPEX (1605 JP)</a>, INPEX announced decent earnings and a buyback. </p><p>A large chunk of that buyback comes Monday morning on 8 November. The announcement of the buyback is split into the <a href="https://www.inpex.co.jp/english/news/assets/pdf/20211105.pdf" target="_blank" rel="noopener">programme announcement</a> (up to 80mm shares (5.48%), up to ¥70bn between now and end-January and the <a href="https://www.inpex.co.jp/english/news/assets/pdf/20211105_d.pdf" target="_blank" rel="noopener">ToSTNeT-3 buyback announcement</a> (53.447mm shares at ¥946/share on Monday morning).</p><p>The last line of that announcement indicated that <a href="https://www.smartkarma.com/entities/inpex-corp" target="_blank" data-smartkarma-citation="entities:20665:1" rel="noopener">Inpex Corp (1605 JP)</a> had received notice from <a href="https://www.smartkarma.com/entities/japan-petroleum-exploration" target="_blank" data-smartkarma-citation="entities:12219:1" rel="noopener">Japan Petroleum Exploration (1662 JP)</a> - longtime second-largest shareholder - that JAPEX <em>"has the intention to sell a portion of the INPEX shares that it holds." </em>Conveniently, 53.447mm shares is exactly half what JAPEX holds, or 3.65% of shares out. </p><p>This is not huge, but for long-time observers of JAPEX, it represents an interesting development. </p><p>More below. </p>

On Friday, as discussed in INPEX Buyback Offers 2 Opportunities - INPEX (1605 JP), INPEX announced decent earnings and a buyback. A large chunk of that buyback comes Monday morning on 8 November. The announcement of the buyback is split into the programme announcement (up to 80mm shares (5.48%), up to ¥70bn between now and end-January and the ToSTNeT-3 buyback announcement (53.447mm shares at ¥946/share on Monday morning).The last line of that announcement indicated that Inpex Corp (1605 JP) had received notice from Japan Petroleum Exploration (1662 JP) - longtime second-largest shareholder - that JAPEX "has the intention to sell a portion of the INPEX shares that it holds." Conveniently, 53.447mm shares is exactly half what JAPEX holds, or 3.65% of shares out. This is not huge, but for long-time observers of JAPEX, it represents an interesting development. More below. 

INPEX Buyback Offers 2 Opportunities - JAPEX (1662 JP)

<p>On Friday 5 November after the close, <a href="https://www.smartkarma.com/entities/inpex-corp" target="_blank" data-smartkarma-citation="entities:20665:1" rel="noopener">Inpex Corp (1605 JP)</a> announced quarterly earnings (<a href="https://www.inpex.co.jp/english/ir/pdf/e20211105_c.pdf" target="_blank" rel="noopener">results</a>, <a href="https://www.inpex.co.jp/english/ir/pdf/e20211105_b.pdf" target="_blank" rel="noopener">presentation</a>) with its second highest quarterly revenue since June 2008 and second highest quarterly operating profit in seven years, and its highest quarterly EPS number since June 2008 with its highest net profit margin as far as I can go back.</p><p>It also announced a buyback of 80,000,000 shares - or 5.48% of shares out.  That buyback will see up to JPY 70,000,000,000 spent between now and the end of January 2022. </p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/240/009/original/Screenshot+2021-11-06+at+9.48.19+PM.png?1636206513" class="editor-image img-responsive" data-smartkarma-image-id="240009"></figure></section><p>The last line tells you something else for later. </p>

On Friday 5 November after the close, Inpex Corp (1605 JP) announced quarterly earnings (results, presentation) with its second highest quarterly revenue since June 2008 and second highest quarterly operating profit in seven years, and its highest quarterly EPS number since June 2008 with its highest net profit margin as far as I can go back.It also announced a buyback of 80,000,000 shares - or 5.48% of shares out.  That buyback will see up to JPY 70,000,000,000 spent between now and the end of January 2022. The last line tells you something else for later. 

INPEX Buyback Offers 2 Opportunities - INPEX (1605 JP)

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Quantitative Analysis

<div><p>The Asia Short Interest weekly looks at moves in market wide short interest and highlights movements in stock specific short interest across Hong Kong, Japan, Korea and Taiwan using the last available data published by the relevant authorities.</p></div><div><p>Hong Kong saw shorts rise on <a href="https://www.smartkarma.com/entities/meituan-dianping" target="_blank" data-smartkarma-citation="entities:26970:1" rel="noopener">Meituan (3690 HK)</a>, <a href="https://www.smartkarma.com/entities/jd-health-international-inc" target="_blank" data-smartkarma-citation="entities:29677:1" rel="noopener">JD Health (6618 HK)</a>, <a href="https://www.smartkarma.com/entities/beijing-kuaishou-technology-co-ltd" target="_blank" data-smartkarma-citation="entities:29725:1" rel="noopener">Kuaishou Technology (1024 HK)</a>, <a href="https://www.smartkarma.com/entities/smoore-international" target="_blank" data-smartkarma-citation="entities:28241:1" rel="noopener">Smoore International (6969 HK)</a> and <a href="https://www.smartkarma.com/entities/microport-scientific-corp" target="_blank" data-smartkarma-citation="entities:4487:1" rel="noopener">Microport Scientific (853 HK)</a> while there was short covering on <a href="https://www.smartkarma.com/entities/ping-an-insurance-grp-co-of-china-ltd" target="_blank" data-smartkarma-citation="entities:12880:1" rel="noopener">Ping An Insurance (H) (2318 HK)</a>, <a href="https://www.smartkarma.com/entities/aia-group-ltd" target="_blank" data-smartkarma-citation="entities:14895:1" rel="noopener">AIA Group Ltd (1299 HK)</a>, <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent (700 HK)</a>, <a href="https://www.smartkarma.com/entities/sunny-optical-tech" target="_blank" data-smartkarma-citation="entities:13363:1" rel="noopener">Sunny Optical (2382 HK)</a> and <a href="https://www.smartkarma.com/entities/hsbc-holdings-plc" target="_blank" data-smartkarma-citation="entities:516:1" rel="noopener">HSBC Holdings (5 HK)</a>. Shorts increased in the Consumer Discretionary and Health Care sectors, while decreasing in Financials and Industrials sectors.</p></div><div><p>In Japan, stocks increased on <a href="https://www.smartkarma.com/entities/kirin-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:16977:1" rel="noopener">Kirin Holdings (2503 JP)</a>, <a href="https://www.smartkarma.com/entities/nippon-building-fund-inc" target="_blank" data-smartkarma-citation="entities:1900:1" rel="noopener">Nippon Building Fund (8951 JP)</a>, <a href="https://www.smartkarma.com/entities/nippon-telegraph-telephone-corporation" target="_blank" data-smartkarma-citation="entities:623:1" rel="noopener">NTT (Nippon Telegraph &amp; Telephone) (9432 JP)</a>, <a href="https://www.smartkarma.com/entities/hulic-co-ltd" target="_blank" data-smartkarma-citation="entities:388:1" rel="noopener">Hulic Co Ltd (3003 JP)</a> and <a href="https://www.smartkarma.com/entities/japan-prime-realty-investmen" target="_blank" data-smartkarma-citation="entities:495:1" rel="noopener">Japan Prime Realty Investmen (8955 JP)</a> while there was short covering on <a href="https://www.smartkarma.com/entities/toshiba-corp" target="_blank" data-smartkarma-citation="entities:637:1" rel="noopener">Toshiba Corp (6502 JP)</a>, <a href="https://www.smartkarma.com/entities/inpex-corp" target="_blank" data-smartkarma-citation="entities:20665:1" rel="noopener">Inpex Corp (1605 JP)</a>, <a href="https://www.smartkarma.com/entities/casio-computer-co-ltd" target="_blank" data-smartkarma-citation="entities:18338:1" rel="noopener">Casio Computer (6952 JP)</a>, <a href="https://www.smartkarma.com/entities/showa-denko-k-k" target="_blank" data-smartkarma-citation="entities:1496:1" rel="noopener">Showa Denko K.K. (4004 JP)</a> and <a href="https://www.smartkarma.com/entities/medley-inc" target="_blank" data-smartkarma-citation="entities:31041:1" rel="noopener">Medley (4480 JP)</a>. Shorts increased on Consumer Staples, Real Estate and Communication Services, while reducing on Industrials, Energy and Consumer Discretionary names.</p></div><div><p>In Korea, shorts increased on <a href="https://www.smartkarma.com/entities/hmm-co-ltd" target="_blank" data-smartkarma-citation="entities:13494:1" rel="noopener">HMM Co., Ltd. (011200 KS)</a>, <a href="https://www.smartkarma.com/entities/doosan-heavy-industries-construction" target="_blank" data-smartkarma-citation="entities:7389:1" rel="noopener">Doosan Heavy Industries &amp; Construction (034020 KS)</a>, <a href="https://www.smartkarma.com/entities/lg-display-co-ltd" target="_blank" data-smartkarma-citation="entities:7145:1" rel="noopener">LG Display (034220 KS)</a> and <a href="https://www.smartkarma.com/entities/hanwha-solutions" target="_blank" data-smartkarma-citation="entities:8656:1" rel="noopener">Hanwha Solutions (009830 KS)</a> while shorts were covered on <a href="https://www.smartkarma.com/entities/samsung-electronics-co-ltd" target="_blank" data-smartkarma-citation="entities:191:1" rel="noopener">Samsung Electronics (005930 KS)</a>, <a href="https://www.smartkarma.com/entities/naver-corp" target="_blank" data-smartkarma-citation="entities:16029:1" rel="noopener">Naver Corp (035420 KS)</a>, <a href="https://www.smartkarma.com/entities/sk-hynix-inc" target="_blank" data-smartkarma-citation="entities:16955:1" rel="noopener">SK Hynix (000660 KS)</a> and <a href="https://www.smartkarma.com/entities/lg-chem-ltd" target="_blank" data-smartkarma-citation="entities:3583:1" rel="noopener">LG Chem Ltd (051910 KS)</a>.</p></div><div><p>In Taiwan, shorts increased on <a href="https://www.smartkarma.com/entities/asustek-computer-inc" target="_blank" data-smartkarma-citation="entities:13002:1" rel="noopener">Asustek Computer (2357 TT)</a>, <a href="https://www.smartkarma.com/entities/unimicron-technology-corp" target="_blank" data-smartkarma-citation="entities:18778:1" rel="noopener">Unimicron Technology (3037 TT)</a>, <a href="https://www.smartkarma.com/entities/nanya-technology-corp" target="_blank" data-smartkarma-citation="entities:3269:1" rel="noopener">Nanya Technology (2408 TT)</a>, <a href="https://www.smartkarma.com/entities/innolux-corp" target="_blank" data-smartkarma-citation="entities:4509:1" rel="noopener">Innolux Corp (3481 TT)</a> and <a href="https://www.smartkarma.com/entities/hannstar-display-corp" target="_blank" data-smartkarma-citation="entities:13922:1" rel="noopener">Hannstar Display (6116 TT)</a> while shorts covered on <a href="https://www.smartkarma.com/entities/evergreen-marine-corp-ltd" target="_blank" data-smartkarma-citation="entities:15428:1" rel="noopener">Evergreen Marine Corp (2603 TT)</a>, <a href="https://www.smartkarma.com/entities/china-airlines-ltd" target="_blank" data-smartkarma-citation="entities:4591:1" rel="noopener">China Airlines (2610 TT)</a>, <a href="https://www.smartkarma.com/entities/fitipower-integrated-technology-inc" target="_blank" data-smartkarma-citation="entities:8712:1" rel="noopener">Fitipower Integrated Technology (4961 TT)</a>, <a href="https://www.smartkarma.com/entities/mediatek-inc" target="_blank" data-smartkarma-citation="entities:772:1" rel="noopener">Mediatek Inc (2454 TT)</a> and <a href="https://www.smartkarma.com/entities/ase-technology-holding-co-ltd" target="_blank" data-smartkarma-citation="entities:27270:1" rel="noopener">ASE Technology Holding Co Ltd (3711 TT)</a>.</p></div>

The Asia Short Interest weekly looks at moves in market wide short interest and highlights movements in stock specific short interest across Hong Kong, Japan, Korea and Taiwan using the last available data published by the relevant authorities.Hong Kong saw shorts rise on Meituan (3690 HK), JD Health (6618 HK), Kuaishou Technology (1024 HK), Smoore International (6969 HK) and Microport Scientific (853 HK) while there was short covering on Ping An Insurance (H) (2318 HK), AIA Group Ltd (1299 HK), Tencent (700 HK), Sunny Optical (2382 HK) and HSBC Holdings (5 HK). Shorts increased in the Consumer Discretionary and Health Care sectors, while decreasing in Financials and Industrials sectors.In Japan, stocks increased on Kirin Holdings (2503 JP), Nippon Building Fund (8951 JP), NTT (Nippon Telegraph &amp; Telephone) (9432 JP), Hulic Co Ltd (3003 JP) and Japan Prime Realty Investmen (8955 JP) while there was short covering on Toshiba Corp (6502 JP), Inpex Corp (1605 JP), Casio Computer (6952 JP), Showa Denko K.K. (4004 JP) and Medley (4480 JP). Shorts increased on Consumer Staples, Real Estate and Communication Services, while reducing on Industrials, Energy and Consumer Discretionary names.In Korea, shorts increased on HMM Co., Ltd. (011200 KS), Doosan Heavy Industries &amp; Construction (034020 KS), LG Display (034220 KS) and Hanwha Solutions (009830 KS) while shorts were covered on Samsung Electronics (005930 KS), Naver Corp (035420 KS), SK Hynix (000660 KS) and LG Chem Ltd (051910 KS).In Taiwan, shorts increased on Asustek Computer (2357 TT), Unimicron Technology (3037 TT), Nanya Technology (2408 TT), Innolux Corp (3481 TT) and Hannstar Display (6116 TT) while shorts covered on Evergreen Marine Corp (2603 TT), China Airlines (2610 TT), Fitipower Integrated Technology (4961 TT), Mediatek Inc (2454 TT) and ASE Technology Holding Co Ltd (3711 TT).

Asia Shorts: Meituan, JDH, Smoore, Ping An, Kirin, NTT, Toshiba, HMM, Doosan, LGD, Hanwha, Evergreen

<p>On Thursday, the Nikkei came out with an <a href="https://asia.nikkei.com/Economy/BOJ-to-widen-interest-rate-target-range-to-support-bank-profits" target="_blank" rel="noopener">article</a> during the lunch break of equities trading. The headline said <em>"BOJ to widen interest rate target range to support bank profits" </em>and indeed in the article it noted that the BOJ would allow the long end of the curve to fluctuate more widely, creating a slightly steeper curve. This could lead to slightly better bank profits less because of the extra 5bp on the curve but more because of the expectation of forcing borrowers to pay more on an absolute basis. </p><p>What was MORE important for equity markets was the idea that the BOJ <em>"would also abolish its target for purchasing exchange-traded funds, now 6 trillion yen ($55 billion) per year, and instead vow to make such purchases only in times of market turmoil."</em></p><p>The article also suggested that the "Target" would be removed for the ¥90bn of J-REITs they buy as a base case (doubled now to ¥180bn as the ¥6trln was doubled to ¥12trln in the depths of the covid crash of March 2020). </p><p>This move caused Nikkei to underperform TOPIX on the day. TOPIX actually ended up on the day, and ended above where the market closed the AM session before the article came out. Nikkei fell, and started underperforming TOPIX from that point on. </p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/195/872/original/Screenshot+2021-03-21+at+3.26.17+PM.png?1616311594" class="editor-image img-responsive" data-smartkarma-image-id="195872"></figure><p></p></section><p>Nikkei underperformed TOPIX in the AM session on Friday, and when the BOJ announcements came mid-day on Friday, there were additional subtleties involved. </p><p>The details are <a href="https://www.boj.or.jp/en/announcements/release_2021/rel210319c.pdf" target="_blank" rel="noopener">here</a>. The presentation with the basic details is <a href="https://www.boj.or.jp/en/announcements/release_2021/k210319b.pdf" target="_blank" rel="noopener">here</a>.</p><ul>
<li>The target rates for ETF and REIT buying will be abolished, but the current "Target Rate" of annual buying will become annual maxima (¥12 trillion for ETFs, ¥180bn for J-REITs, with ongoing maximum ownership limits on ETFs in place).</li>
<li>Buying of ETFs and J-REITs will be conducted "as necessary" "in times of market turbulence" and such buying will be done only on TOPIX ETFs.</li>
<li>The "Special Rules for Purchases of ETFs to Support Firms Proactively Investing in Physical and Human Capital" will continue as before with only specific ETFs permitted in this group. The amount of ~¥300bn/year and ¥1.2bn per business day will continue.</li>
</ul><p>It based the new policy on the Reference <a href="https://www.boj.or.jp/en/announcements/release_2021/k210319c.pdf" target="_blank" rel="noopener">document</a> which backs up the changes in policy is <em>much</em> more interesting reading.  Appendix 5 and Chart 12 are the parts you want to read.</p><p>The hypotheses and results are described here.</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/195/869/original/Screenshot+2021-03-21+at+3.02.28+PM.png?1616310186" class="editor-image img-responsive" data-smartkarma-image-id="195869"></figure></section><p>There are a couple of other side conclusions but the base understanding is...</p><div class="content-highlight"><p>When the BOJ steps into the market in size, in times of market turbulence, and when stocks are trading below their medium-term average, it has a greater effect per dollar spent on market-wide risk premia as measured in option premia than buying in normal times, and size matters when looking at the risk premia change on single stocks.  </p></div><h3>What This Means</h3><ul>
<li>When the BOJ steps into the market in size, in times of market turbulence, and when stocks are trading below their medium-term average, it has a greater effect per dollar spent on market-wide risk premia as measured in option premia than buying in normal times, and size matters when looking at the risk premia change on single stocks.  </li>
<li>Expect the BOJ to follow the concept of its study (Appendix 5 again).</li>
<li>Expect the BOJ to pay greater attention to futures activity. </li>
</ul><h3>What This Does NOT Mean</h3><ul><li>It does NOT mean the BOJ will be selling any ETFs.</li></ul><hr><p>It is worthwhile taking a look at WHY the market reacted the way it did on Thursday and Friday afternoon, and it is worthwhile looking at what the BOJ ETF buying might look like going forward. </p><p>So we do so below the fold.</p><p>Note: This is part 1 of the analysis of potential future BOJ ETF Buying. Part II looks at the difference in single stock makeup. </p>

On Thursday, the Nikkei came out with an article during the lunch break of equities trading. The headline said "BOJ to widen interest rate target range to support bank profits" and indeed in the article it noted that the BOJ would allow the long end of the curve to fluctuate more widely, creating a slightly steeper curve. This could lead to slightly better bank profits less because of the extra 5bp on the curve but more because of the expectation of forcing borrowers to pay more on an absolute basis. What was MORE important for equity markets was the idea that the BOJ "would also abolish its target for purchasing exchange-traded funds, now 6 trillion yen ($55 billion) per year, and instead vow to make such purchases only in times of market turmoil."The article also suggested that the "Target" would be removed for the ¥90bn of J-REITs they buy as a base case (doubled now to ¥180bn as the ¥6trln was doubled to ¥12trln in the depths of the covid crash of March 2020). This move caused Nikkei to underperform TOPIX on the day. TOPIX actually ended up on the day, and ended above where the market closed the AM session before the article came out. Nikkei fell, and started underperforming TOPIX from that point on. Nikkei underperformed TOPIX in the AM session on Friday, and when the BOJ announcements came mid-day on Friday, there were additional subtleties involved. The details are here. The presentation with the basic details is here.
The target rates for ETF and REIT buying will be abolished, but the current "Target Rate" of annual buying will become annual maxima (¥12 trillion for ETFs, ¥180bn for J-REITs, with ongoing maximum ownership limits on ETFs in place).
Buying of ETFs and J-REITs will be conducted "as necessary" "in times of market turbulence" and such buying will be done only on TOPIX ETFs.
The "Special Rules for Purchases of ETFs to Support Firms Proactively Investing in Physical and Human Capital" will continue as before with only specific ETFs permitted in this group. The amount of ~¥300bn/year and ¥1.2bn per business day will continue.
It based the new policy on the Reference document which backs up the changes in policy is much more interesting reading.  Appendix 5 and Chart 12 are the parts you want to read.The hypotheses and results are described here.There are a couple of other side conclusions but the base understanding is...When the BOJ steps into the market in size, in times of market turbulence, and when stocks are trading below their medium-term average, it has a greater effect per dollar spent on market-wide risk premia as measured in option premia than buying in normal times, and size matters when looking at the risk premia change on single stocks.  What This Means
When the BOJ steps into the market in size, in times of market turbulence, and when stocks are trading below their medium-term average, it has a greater effect per dollar spent on market-wide risk premia as measured in option premia than buying in normal times, and size matters when looking at the risk premia change on single stocks.  
Expect the BOJ to follow the concept of its study (Appendix 5 again).
Expect the BOJ to pay greater attention to futures activity. 
What This Does NOT MeanIt does NOT mean the BOJ will be selling any ETFs.It is worthwhile taking a look at WHY the market reacted the way it did on Thursday and Friday afternoon, and it is worthwhile looking at what the BOJ ETF buying might look like going forward. So we do so below the fold.Note: This is part 1 of the analysis of potential future BOJ ETF Buying. Part II looks at the difference in single stock makeup. 

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

Japan

INPEX CORPORATION is a holding company established through the reorganization of INPEX Corp and Teikoku Oil.  The Company manages subsidiaries that explores, produces, and sells oil and natural gas.

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Inpex Corp (1605 JP)

JAPEX Profit and BUYBACK - More To Go

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INPEX Buyback Offers 2 Opportunities - INPEX (1605 JP)

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Asia Shorts: Meituan, JDH, Smoore, Ping An, Kirin, NTT, Toshiba, HMM, Doosan, LGD, Hanwha, Evergreen

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

The BOJ has announced a change in ETF Buying Program Parameters. The study/review they did is required reading to understand how they might buy...

Travis Lundy

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