The Real Meaning of the Japanese Action – Raw Desperate Fear

Stock markets rallied hard on Friday after the Bank of Japan (BoJ) threw the kitchen sink of Central Bank Keynesian bullshit at their bond and stock markets, as well as ours. In order to allow their great pension monster GPIF to move a large sum in the hundreds of billions of dollars out of JGBs and into equities, the BOJ raised its bid for JGBs to “all that are offered” and threw in some stock buying at home and abroad as well. They will now be buying every single yen of debt issued by the Japanese government. The Nikkei rose 5%. Other world marklets were also up strongly, in the 1-2% range.

This is not policy making. Policy making implies that things are under control and you are affecting outcomes. This is wildly desperate throwing of noodles on the wall to see if any sticks. This is not reason for confidence in equity markets. This is a reason for a loss of confidence in “policy makers”, including our own. For the difference is largely one of degree. They have taken our policy mix to its end point and found it wanting and so have opened the spigots full on in the hopes it can wash away the rot. It will not. We are closer to the end game now. The policies brought to bear have been found out to be useless and at some point it might dawn on us on this side of the Pacific that that means our own battle is forlorn unless we change direction dramatically.

Wildly desperate actions are the kind of actions which one might think would lead to volatility and risk-off sentiment.  So why would this Japanese action lead to risk-on?  From what I have read, the rise in the market cap of US stocks on Friday alone is more than all of the buying to be done by GPIF and the BoJ.  Why then is this bullish?

Comments are closed.