Leveraged Investors Lose Faith in Abenomics, BOJ Easing or Not

(Bloomberg) -- The biggest local cheerleaders for Japan Prime Minister Shinzo Abe are losing faith in his economic policies even as the stock market rallies on expectations of further stimulus.

Japanese individuals trading using borrowed money cut their bets on a rising equity market to the lowest since March 2013, shortly before central bank Governor Haruhiko Kuroda unleashed unprecedented bond-buying that sent the Nikkei 225 Stock Average to its biggest annual gain in four decades. Even as most economists predict the Bank of Japan will add to monetary easing when its two-day policy meeting ends on Friday, leveraged investors are speculating this time won’t have the same effect.

“Individuals’ hopes for higher share prices are receding,” Yutaka Miura, senior technical analyst at Mizuho Securities Co. in Tokyo, said by phone. “Stock indexes are mainly trading in a range, and they’re cautious about chasing them higher. They’ll buy when they hit the bottom of the range but they’re selling whenever it gets near the top.”

The difference between the outstanding balances of buys and sells in margin accounts at the Tokyo and Nagoya stock exchanges fell to 1.54 trillion yen ($14.6 billion) as of July 22, the lowest since a 1.45 trillion yen figure on March 8, 2013, according to data from the Tokyo bourse.

Foreign investors, buyers in the earlier years of Abe’s term, had already been heading for the exits, offloading 5 trillion yen in stocks over 13 straight weeks from the start of the year. Americans have pulled almost $10 billion in 2016 from the two largest exchange-traded funds tracking the Japanese market.

Leveraged investors are joining the exodus just as the Topix index recovers from its selloff after the U.K. voted to leave the European Union. The equity measure has gained 9.7 percent from June 25 through Wednesday after plunging 7.3 percent the previous day for its worst loss since the aftermath of the 2011 earthquake and tsunami. The Topix slid 1.1 percent on Thursday.

The gauge is down 16 percent in 2016 for the second-worst performance among 24 developed markets tracked by Bloomberg, and much of that fall came after the BOJ added to stimulus by introducing negative interest rates. Leveraged investors remain jaded as 32 of 41 analysts forecast that Kuroda and his board will expand their record program at the two-day meeting ending on July 29, while Kyodo News reported Abe plans economic stimulus of more than for 28 trillion yen ($267 billion).

“Expectations for further stimulus have already been priced in to some extent,” Mizuho’s Miura said. And “whether the BOJ eases or doesn’t ease, individuals think stocks will fall.”

(Closes market moves in sixth paragraph.)

To contact the reporters on this story: Min Jeong Lee in Tokyo at mlee754@bloomberg.net, Toshiro Hasegawa in Tokyo at thasegawa6@bloomberg.net. To contact the editors responsible for this story: Jeff Sutherland at jsutherlan13@bloomberg.net, Tom Redmond

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