Japan: Off the Charts

What does Japan’s new stimulus package mean?

Source: Wikipedia

On Friday the Bank of Japan announced it would expand its asset-buying program by $750 billion per year, buying stocks and real-estate funds as well as bonds. The central bank could be buying more than twice the amount of new bonds issued by the government. At the same time, the Government Pension Fund said it would raise its share of stock investments by over $100 billion.

The Yen fell and Japanese stock market rallied nearly 5% on the news; the equivalent of more than 800 points on the Dow. Japanese bond yields, already low, went even lower. Much the way the European Central Bank President Mario Draghi famously declared that the ECB would do “whatever it takes” to save the Euro, BOJ Governor Haruhiko Kuroda vowed Friday that they would end deflation in Japan which has encouraged people to delay investment and consumption spending in the expectation that prices will just keep falling.

They certainly need to. For the past 30 years, Japanese stocks have risen perhaps 1% per year, echoing a stagnant economy that went off the rails in the early 90s and never got back on, despite a lot of ups and downs along the way.

Source: St. Louis Fed

Friday’s move brings Japan even further into uncharted economic waters. Even before their latest round of QE, the BOJ’s balance sheet was 60% of the economy; their government debt is twice the size of their economy—three times that of the US. There is a risk if the economy doesn’t re-tool fast enough, a falling Yen could create price inflation without a corresponding increase in wages, squeezing consumers.

Japan’s $5 trillion economy is important; it represents over 5% of global production. When early explorers went off the edge of their maps, they ran into unmarked spaces labeled TBD: not “To Be Determined,” but rather “There Be Dragons.”


Douglas R. Tengdin, CFA
Chief Investment Officer
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By | 2017-07-17T12:23:14+00:00 November 3rd, 2014|Global Market Update|1 Comment

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. –
Leave a comment if you have any questions—I read them all!
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One Comment

  1. John Armstrong November 3, 2014 at 3:48 pm - Reply

    I am starting a position in the DXJS ( Wisdom Tree Japan Small- cap) …can Japan retool fast enough to see equities rise ford “x” amount of time…do you have a sense of “x”?

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