This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Historic Move by Bank of Japan Creates Selling Opportunity

NEW YORK ( TheStreet) -- The Bank of Japan's latest monetary experiment is one of the most daring in recent times, essentially doubling the country's monetary base by the end of 2014.

In the first policy meeting headed by Haruhiko Kuroda, the central bank discussed plans to buy $520 billion (50 trillion yen) in government bonds each year. This figure comes to nearly 10% of annual gross GDP in Japan and will include both long-term government bonds (with maturities as long as 40 years) and assets from riskier categories (such as ETFs and REITs).

The aggressive program was announced in an attempt to reverse systemic deflationary pressures and revive growth prospects in a long-stagnant economy.


Markets were expecting additional stimulus announcements at the April meeting but the majority of analysts had a much more limited outlook. To put the Japanese central bank's plans into perspective, we can compare this version of quantitative easing to what has already been implemented by the Federal Reserve.

The Fed's plan commits to $85 billion in monthly bond purchases and agency-backed mortgage securities. This comes to roughly 6.8% of the $15.1 trillion gross GDP seen annually in the US, roughly 2/3 of the proposals in Japan.

Defining the BoJ's Goals

The broad scope of these programs has led some analysts to suggest that these moves amount to outright central-bank funding of the government. But the main reason behind these massive monetary injections is to encourage consumers and businesses to borrow more and to take advantage of lower long-term interest rates.


In theory, this could stimulate business activity as corporations use the extra cash as funding for expansion. At the same time, the hope is that consumers will take the opportunity to buy real estate with the cheaper available cash. With more money injected into the system, the best case scenario would show people spending the extra funds (at cheaper rates), driving consumer demand, and putting upward pressure on consumer prices. The BoJ's commitment now is to achieve a yearly inflation rates of 2%.

1 of 3

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs