Weekly Commentary – Japan’s QE
New Bank of Japan’s Governor Haruhiko Kuroda unveiled radical step to boost inflation in Japan last week. BOJ said the monetary base would nearly double to 270 trillion yen ($2.8 trillion) by the end of 2014. The scale of BOJ’s measure is out of market expectation. Japanese Yen slumped and touched 98.46, and sparking huge gain in stock market.
By taking a new QE measures, BOJ would like to push down the Yen, regain some trade competitive of exporters, and hold the rates marktetplace flat.
While market players believe the inflation rate in Japan will go up in the future and see a jump in nominal GDP because of the new measures, whether the action can stimulate economy is in doubt. Without structural reform, the stimulate can do very limit to Japan’s declining population and hollowed-out industry.
By taking the new stimulate action, BOJ is heavily exposure to the JGB. It is a dangerous action. If investors do not believe the latest action taken by BOJ can help to revive the economic growth in Japan and lose control to the rates, BOJ would suffer from huge potential loss.
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