Japan monetary policy the game changing point

China recent H7N9 is again bring down China and Hong Kong stock indexes. But in Japan and other ASEAN countries, stock indexes are climbing. This arbitrage make China related stocks the more attractive.

US Quantitative and Europe bond buying activities are bringing down the interest rate to ever low level. With low interest rate, bond become less attractive compared to equities. Low interest rate also make the currency less value. Therefore, more money is switch from bond to equities, to other asset like property. The one who kept buying the bond is government to support the low interest rate environment. Apart from money switch from bond to equity and other asset, money also search their way oversea to Asia where interest rate is higher, where currency is stable, where equity return are better. All of these actions make the equity indexes all over the world to climb higher and higher.

Now, Japan joins the crowd of US and Europe. We can see immediately Japan stock index is climbing very fast where its currency is depreciating fast. Due to scare of continue depreciating of its Yen, money switched from bond to equities, money is converted to other currency, or transfer out to other countries. So, while we are seeing the depreciating of yen and surging of Japan stock index, we see appreciating of other countries' currency in countries other than US and Europe, we also see the surge of equity indexes of other countries.

Japan policy of "printing money to create inflation" might be a game changing point in world economy. A sudden slump of yen value will greatly disrupt the trading pattern of the world economy. Devaluation of yen, US and Euro will automatically made China and ASEAN countries currency appreciate. From that, looks like US, Euro and Yen will export more and China and ASEAN will import more. Looks like the trade imbalance will improve. Looks like the world is paving a better foundation and footing for future economy growth.

It is not that US QE and Europe Bond buying activities thus far is not improving the situation, just that the adding of another economy giant into their "money printing" camp has a very huge impact. Also Japan has been not contributing to world economy growth for more than 20 years. If Japan can return to growth, the impact can be huge.