Unexpected Slow Growth Extends Unlimited Loans
02/19/2014 11:00 am EST
First came Europe's promise to support the euro, then the US pledge to keep interest rates low, and yesterday it was announced that Japan's extending its unlimited loan program for another year, writes MoneyShow's Jim Jubak, who shares what gained off of the news.
The euro had Mario Draghi's pledge to do whatever it takes to support the currency. The dollar had Ben Bernanke's pledge to keep short-term interest rates extraordinarily low for an extended period.
And now the yen has an “unlimited” loan program from the Bank of Japan that is looking more truly unlimited.
With Japanese GDP growth unexpectedly slowing to an annual 1% rate in the fourth quarter and with the Japanese consumer facing an increase in the national sales tax to 8% from 5% in April, Japan's central bank, yesterday, extended its unlimited loan program for another year. The program, which had lent 5.1 trillion yen ($49.8 billion) in low-interest cash to banks since December, had been scheduled to expire at the end of March. At the same time, the bank loosened a limit on how much “unlimited” money a bank could borrow. Previous rules restricted a bank to borrowing cash equal to its net increase in lending. Now banks will be able to borrow twice the amount of any increase in lending.
The central bank also slightly increased the size of its monthly purchases of Japanese government bonds to a range of six trillion to eight trillion yen, from a target of approximately seven trillion yen a month.
Yesterday in Tokyo, the Nikkei 225 stock index (NKY:IND) closed up 3.13%. Financial and real estate stocks were the big winners. In the financial sector, Mitsubishi UFJ Financial Group (MTU) rose 5.03% and Sumitomo Mitsui Financial Group (SMFG) climbed 5.0%. (Mitsubishi UFJ Financial Group is a member of my Jubak's Picks portfolio.) In the real estate sector, Heiwa Real Estate (8803:JP) gained 4.13% and Mitsui Fudosan (8801:JP) advanced 3.31%. The yen fell against the dollar by 0.4% to 102.34 yen to the dollar.
Full disclosure: I don't own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund, I liquidated all my individual stock holdings and put the money into the fund. The fund may or may not now own positions in any stock mentioned in this post. The fund did own shares of Mitsui Fudosan as of the end of December. For a full list of the stocks in the fund, see the fund's portfolio here.