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ECONOMY

GPIF and BOJ stage corporate Japan’s high stock prices

  • February 26, 2017
  • , Asahi , P. 2
  • JMH Translation

Pensions and the Bank of Japan’s money that add up to some 40 trillion yen have become “hidden huge shareholders” in the Japanese market. The “government-led market” underpinned by public money does not reflect corporate Japan’s earning power and is causing stock prices to be overvalued. The trend continues with no end in sight and public money is only boosting its presence.

 

Companies whose major shareholder is enormous public money largely enjoy stable performance and high earnings. But the stimulating effect of public money could result in stock prices that exceed companies’ actual values.

 

Roughly 12% of shares in Fast Retailing are virtually owned by the Government Pension Investment Fund (GPIF) and the BOJ. About 20% of shares in the operator of Uniqlo clothing stores are held by Tadashi Yanai, founder, president, and CEO of the company. Except for cross-held shares, approximately 25% of all the company’s shares are said to be traded in the market. But the shares are not easily accessible to general investors because GPIF and the BOJ hold a large portion of them.

 

One investor said, “I can’t afford [Fast Retailing’s stocks] because they are overvalued compared with the company’s actual value.” In fact, Fast Retailing announced in October 2016 that its net profit for the fiscal year ended in August 2016 was down by half on the year due to a slowdown in its Uniqlo business. But the company recently saw its stock price rise by about 6%.

 

Kimie Harada, a professor at Chuo University’s Faculty of Commerce, says, “The link between corporate performance and stock price is becoming weaker and weaker. The overwhelming existence of public money is distorting stock prices.”

 

The dominance of GPIF and the BOJ could also hamper efforts to strengthen corporate governance, which promotes greater earning power through business restructuring and the appointment of board members. GPIF and the BOJ entrust trust banks and other bodies to exercise their voting rights at shareholders meetings in an effort to avoid government intervention in corporate management. A senior official at a U.S. asset management firm says, “Public money could be a silent ruling shareholder.”

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