TOKYO, March 18, 2016 /PRNewswire/ --
Fewer economies have confounded efforts to accurately predict the timing of a sustained recovery as Japan's. It's over 20 years since a massive, debt-fueled asset bubble imploded, laying waste to a perversely over-inflated economy. Since then, the country has been battling deflation/falling prices while dealing with an ageing population, one of - if not the - lowest birth rates on the planet, a burgeoning fiscal debt that weighs in at over 245% of gross domestic product, several earthquakes and a nuclear disaster.
Up until the start of Shinzo Abe's second tour of duty as Prime Minister [his first was in 2006 and it only lasted a year], the country's central bank, the Bank of Japan, had taken a traditionally cautious approach to the use of monetary policy tools in its efforts to defibrillate a stagnant economy. Upon his return to the hot seat in 2012, however, he appointed his staunch ally, Haruhiko Kuroda, to the Governorship of the Bank of Japan. Since then, Kuroda has let loose with unprecedented monetary stimulus in the form of a quantitative easing program targeted to increase the country's base money supply by ¥80 trillion each YEAR as he tries to create 2% core price inflation.
To date, the inflation needle has barely budged but the shares of companies listed on the Nikkei 225 have enjoyed surging valuations as cheap, easy and free-flowing money surged into the coffers of banks and other financial institutions who promptly put it to work in equities.
"Japan's equity markets are unique insofar as the central bank effectively tells investors that it is committed to creating money to drive up the prices of assets," says John Black, Senior Vice President responsible for overseeing all corporate trading and allocation of funds at Mizuho Financial Global.
The Bank hasn't drawn the line at QE. Just three weeks ago, it introduced negative interest rates for the first time ever as part of a push to encourage commercial banks to lend money to businesses and consumers instead of parking excess reserves at the central bank in return for the paltry 0.1% interest it would pay them. Granted, rates only went negative by -0.1% but the Bank said it is prepared to go much further.
Stocks surged briefly but any gains were promptly given back over the course of a tumultuous week which saw the Nikkei 225 plunge into bear market territory. Stocks have since staged something of a relief rally but John Black believes it will be short-lived.
"We're expecting selling to resume shortly but we're positioning clients to take advantage of the high likelihood that the Bank of Japan will step in to support the market with further stimulus. When a central bank is as determined as the BoJ to stoke inflation, it makes no sense whatsoever to argue - as an investor, you either hop aboard or stand well out of the way," noted Black.
John Black said that Mizuho's current recommendations to overseas clients are focused on key Japanese exporters citing QE's effect on the yen as being particularly positive as it makes their products cheaper in foreign markets, resulting in better sales and profits.
"The old adage 'Don't fight the Fed' works with more or less any central bank that pursues monetary policy as aggressively as the BoJ does," concluded John Black.
About Mizuho Financial Global:
Mizuho Financial Global is an independent, full-service brokerage, wealth management and business management concern dedicated to providing pioneering capital appreciation and wealth preservation solutions to affluent individuals and families and businesses.
Without exception, we place the welfare of our clients first and foremost and we take great pride in knowing that we are the first port of call for their investment and financial affairs. We constantly exceed our clients' expectations by going the extra mile to deliver the service and, most importantly, the returns on investment their patronage demands.
The operations based at our headquarters in Tokyo, Japan are responsible for the diligent oversight of more than $4.5 billion-worth of assets on behalf of valued clients located in Asia and Europe.
SOURCE Mizuho Financial Global