Did You Know You Can Purchase Part of A Major Central Bank?

Every day the business press is filled with stories about what key central banks like the Federal Reserve, the Bank of England or the Bundesbank are  doing to influence global economic affairs.  For most of us these banks are relatively abstract institutions that control our lives but over which we have no control.  However, there is one central bank that is unique.  The Bank of Japan, which controls the money supply of the 3^rd largest economy in the world, has shares traded on one of the Japanese stock markets.  This means you can buy and sell parts of this central bank just like buying and selling shares of a major corporation like Google or Toyota.  Not many people know about this and even fewer trade the stock.  The day this was written just 5 trades happened.

The Bank of Japan, nicknamed the BOJ, even pays a dividend!  The dividend is not much since each year it is mandated by law to be no more than 5 million Yen (about 50,000 US dollars) for all shareholders.  The float, or number of shares issued isn’t large, just 1 million shares are outstanding.  This means each share of stock you own gets a yearly dividend of 5 Yen, which is a bit less than 5 US cents.  At the current stock price this results in a dividend rate that is almost zero (0.01%).

Currently the stock is trading at about 50 thousand yen per share, which is around 400 US dollars (get a current quote by clicking here).  This means it takes less than half a billion US dollars to purchase all the shares and own 100% of a major central bank.

Why would anyone want to own a central bank?  One great reason is that central banks hold a lot of gold in their vaults.  The World Gold Council shows how much gold each country’s central bank holds.  The Bank of Japan has about 765 tonnes of gold!  That is about the same weight as 500 Toyota Corollas.  At current gold prices the value is about US $28 billion.  Any rational hedge fund manager or corporate raider would love to spend half a billion dollars to get their hands on $28 billion in gold, plus billions more  in Japanese government bonds, paper money and prime Tokyo real estate owned by the bank.

Given the stock price appears grossly undervalued compared to the Bank’s assets why don’t traders take over the Bank ?  The answer is simple.  First, the Japanese government owns 55% of all shares.  This means it is impossible for any outside investor to gain majority control over the bank.  Second, the law that created the Bank states it “does not grant holders of subscription certificates the right to participate in the Bank’s management”.  Subscription certificates are the shares of stocks.  This means shareholders never get to vote.

The graph below shows that the price of shares fluctuates wildly over time.  Why it fluctuates so much is a very puzzling question.  I don’t know why anyone would buy shares in the Bank of Japan.  The dividend is almost zero and by law cannot be increased.  Shareholders are given no vote.  It is impossible to take over the Bank and sell off its parts.  These reasons suggest that the stock’s price should be close to zero.

The WSJ doesn’t know why anyone would buy this stock and neither do I.  Nevertheless, there are clearly a few traders out there each day who are buying and selling the Bank’s stock.  Do you know why investors are trading this stock?

Bank of Japan’s Stock Market Price.