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Bank of Japan: Trick or Treat?

  • Japanese businessman
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Tags Global Economy

10/31/2014

The Bank of Japan announced an unexpected major increase in its Quantitative Easing policy increasing its purchases from 50 to 80 trillion Yen sending US stock markets to all time highs and Japanese markets to multi-year highs. Some people made a bundle because of the move, others lost a bundle.

NEW YORK (MarketWatch) — U.S. investors scored a Halloween treat.

An unexpected everything-but-the-kitchen-sink stimulus plan by the Bank of Japan on Friday triggered some sizeable global market moves, across assets from currencies to stocks.

Considering the trillions of yen being bandied about, the market moves aren’t surprising— ¥80 trillion (roughly the equivalent of $714 billion), from 50 trillion. The central bank increased its purchases by ¥30 trillion from the prior pace, and markets went to town. The Nikkei 225 index NIK, +4.83% NIK, +4.83% got the ball rolling by rallying to a seven-year high.

It’s a coordinated global relay race where the central banks are passing the baton,” said Richard Gilhooly, U.S. director of interest-rate strategy at TD Securities.

“The problem with all this global currency devaluation is that nothing is based on fundamentals only intervention. It becomes a dangerous game over time as I believe overall risk assets have the propensity to be mispriced,” said Tom Tucci, head of Treasury trading at CIBC World Markets Corp., in a note.

Mark Thornton is a Senior Fellow at the Mises Institute and the book review editor of the Quarterly Journal of Austrian Economics. He has authored seven books and is a frequent guest on national radio shows.

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