Japan Grows Some QE of Its Own

09/20/2012 2:00 am EST

Focus: MARKETS

Jim Jubak

Founder and Editor, JubakPicks.com

Not to be outdone by the US or Europe, the Bank of Japan took surprisingly aggressive steps to try once again to kickstart the country's economy, writes MoneyShow's Jim Jubak, also of Jubak's Picks.

The Bank of Japan, the country’s central bank, has joined the global parade of central banks moving to stimulate domestic economies.

In the case of the Bank of Japan, the move wasn’t unexpected, although the timing is more aggressive than economists had projected. Most thought the move wouldn’t come until October.

The Bank of Japan didn’t cut interest rates—with short-term rates at 0%, that would have been quite a trick. Instead, it expanded Japan’s version of quantitative easing by increasing its asset-buying program by 10 trillion yen ($128 billion.) The new funds will go to purchase government bonds and Treasury bills.

The Bank of Japan also cut its forecast for the country’s economy from last month. Then the central bank said that the economy was starting to pick up moderately on climbing domestic demand. Today, the bank said the recovery had paused.

After the announcement, Tokyo’s Nikkei stock index rose to a four-month high before closing at 9,232.21, up 1.19%. Investors saw the expansion of the bank’s program of quantitative easing as likely to depress the yen. Worries had been mounting recently that a stronger yen would start, again, to hurt Japanese exporters.

The Bank of Japan’s action has also helped stock markets across Asia. Stronger demand from Japanese exporters for components and subassembly work done outside of Japan is good news for technology and consumer electronics companies from Thailand to China. For the day, the Malaysian market was up 0.35%, Singapore was up 0.25%, and Thailand was up 0.99%.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund, may or may not now own positions in any stock mentioned in this post. For a full list of the stocks in the fund as of the end of June, see the fund’s portfolio here.

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