Japan

In line with our forecast, the Bank of Japan has once again announced a further round of Quantitative Easing (QE).

Our comment from 02/03/2014:

More QE for Japan

Japan’s central bank will make another quantitative easing, most probably late in the second half of 2014.

MarketWatch reports: “The central bank expanded the size of its Japanese Government Bond purchases to the equivalent of “about 80 trillion yen” ($727 billion) a year, an increase of ¥30 trillion from the previous pace. It said it would also buy longer-dated JGBs, seeking an average remaining maturity of 7-10 years.

The central bank also said it would triple its purchases of exchange-traded funds and real-estate investment trusts.

Concerns about dwindling inflation appeared to drive the move, with the Bank of Japan saying that “on the price front, somewhat weak developments in demand following the [April 1] consumption-tax hike and a substantial decline in crude-oil prices have been exerting downward pressure recently.” ”

As the reality of QE unfolds we do not expect further QE to occur in Japan at this time. If our bullish scenario in the US occurs, this should be enough to continue to pull the Japanese economy along. In the long term however, demographics, debt and lack of deregulation will kill the Japanese economy.