Quantitative Easing On Steroids
Everyone knows that asset prices are being supported by central bank money printing called quantitative easing. Central banks such as the Federal Reserve(FRB), Bank of England(BOE), and now the Bank of Japan(BOJ) are printing money at unprecedented levels. When a country can buy its own debt from money created out of thin air that money will then go into stocks and inflate the equity markets.
The NIKKEI 225 (Japan) has been surging higher since the country started to devalue its own currency. The Japanese Yen has plummeted against the U.S. Dollar and this has been the catalyst to boost asset prices in Japan. Leading Japanese ADR's such as Toyota Motor Corp (ADR) (NYSE:TM), and Honda Motor Co. Ltd. ADR (NYSE:HMC) are now trading at new 52 week highs because of this central bank action.
A weak currency will help to boost exports for Japan as their products become cheaper for countries with a strong currency. The downside to this money printing is inflation, but at this time the central banks around the world say there is very little inflation. The cure for inflation when it comes will be to stop printing money and raise interest rates. Unfortunately, history has shown that most central banks around the world will create a massive bubble before they start to withdraw the easy money policies. We shall see if it is different this time.
The Bank of Japan has stated that they will implement monthly bond purchases in the amount of 7.5 trillion yen (US$78 billion) per month in an attempt to increase inflation to two percent within the next two years. Currently, the United States is buying $85 billion worth bonds every month. It is important to note that Japan's economy is one third of the size as the United States. So it is safe to say, Japan has the printing presses on turbo at this time. Traders and investors should watch the NIKKEI 225 Index for near term chart resistance around the 14,000 level. There will also be important chart resistance around the 15,000, and 15,470 levels should the index trade higher.