The Phaserl


Japan Continues to Circle the Drain

by James Corbett, The International Forecaster:

Japanese stocks are tumbling again this week as the yen continues to strengthen against the dollar. This despite the very best efforts of the Bank of Japan to keep the yen down. Or maybe it’s because of those efforts?

The saddest reflection of the state of Japan’s economy this week comes from a new Bloomberg analysis that notes how the Bank of Japan is not only the top 5 shareholder of 81 different companies listed on Japan’s Nikkei 225 index, it’s set to become the number one shareholder in 55 of those firms by the end of next year. This comes on the back of Kuroda’s decision last month to double the already-considerable amount of ETF buying that the BoJ is engaging in.

As Bloomberg quotes Masahiro Ichikawa, a Tokyo-based senior strategist at Sumitomo Mitsui Asset Management: “Only in Japan does the central bank show its face in the stock market this much. Investors are asking whether this is really right.”

Well, at least the BoJ is quite open about its ETF purchases and at least Japanese investors are finally starting to worry about the effects this has on the economy. In the US, the plunge protection team operates behind the scenes and investors are more than happy to ride their bubbles as far as they’re willing to expand (which is pretty far).

Meanwhile there is no light at the end of the tunnel for the land of the rising yen. The Abe government just announced a remarkable new 28 trillion yen ($276 billion) stimulus package, including 10.7 trillion yen allotted for infrastructure projects. But as the Nikkei Asian Review notes, Japan is now relying on this type of massive intervention to even achieve the kind of anemic growth that the country has grown used to.

Add to that the ongoing demographic crisis that continues to unwind the life savings of newly-retired pensioners who have been investing in Japanese Government Bonds their entire lives and you have the perfect conditions for a cataclysmic economic event. The only question is what spark on what day will set off the powder keg.

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