Today we have a guest post by Venk Lal, director of global equity, investment risk management, for the EverKey Global Equity team at Wells Capital Management. In an article written on April 4, Venk shared his thoughts about Japan’s recent equity market outperformance as well as the Bank of Japan’s announced monetary policy changes, and whether this signals the next stage in promoting a cycle of Japanese reflation.
Quantitative and qualitative monetary easing announced early this morning by Haruhiko Kuroda, the Bank of Japan’s (BOJ) governor, heralded another stage in the ongoing efforts to reflate Japan’s economy, the dollar/yen currency, and local capital markets.
While the rise of Japan’s equity market over the past quarter begs the question of whether recent outperformance represents only an ephemeral cyclical wave of market euphoria following Prime Minister Shinzō Abe’s landslide December election or whether it has the makings of a longer-lasting and self-fulfilling structural phenomenon, the announced comprehensive changes to monetary policy provide further impetus for Abe-nomics’ reflationary policy agenda.
The BOJ announced transformative changes to its monetary policy framework, positively surprising market expectations with the scale of action, the unanimity of internal support, the timing of its decision (preceding its April 26 meeting), and the well-orchestrated strategy for communication with market participants. Actions spanned a number of areas: