Buried amid the surprise stimulus by the Bank of Japan last week was a footnote: the central bank will start using an equity gauge designed to shame the nation’s companies into becoming more profitable.
The BOJ can buy exchange-traded funds tracking the JPX-Nikkei Index 400, it said Oct. 31, when it tripled annual purchases of ETFs to about 3 trillion yen ($26 billion). The nation’s $1.1 trillion Government Pension Investment Fund is already investing in the state-backed equity measure designed to make Japanese companies use cash better.
For Mitsubishi UFJ Asset Management Co. and SMBC Nikko Securities Inc., the BOJ’s move shows Japan will put its money where its mouth is in seeking to improve return on equity at the nation’s companies. Other efforts include a government-endorsed ROE target of 8 percent and a stewardship code that enlists investors to press management for higher returns.