Japans QE and equities
Japan's aggressive quantitative easing program is on track to far exceed US balance sheet expansion, but will it boost equities in 2015?
Japan is printing yen to boost inflation. The Bank of Japan's asset purchases increased from October 2014 as officials tried to hit an inflation target of 2%.
"On the basis of its stated intentions, its balance sheet is heading towards 100% of GDP in 2016," according to EFG Asset Management in its 2015 outlook report.
"That dwarfs the expansion by the Fed and the Bank of England."
EFGAM believes the central bank efforts to reach 2% underlying inflation will continue but are unlikely to be effective.
"One lesson learnt from quantitative easing by other central banks is that even large scale asset purchases can have little direct impact on inflation, the effects only coming through over time as a result of stronger growth, wealth effects and currency weakness."
That said, the fund house was bullish on Japan equities, particularly on Japan ETFs, which "form part of the expanded QE armoury".
"We expect that aggressive QE will also push down the yen's value again, especially in an environment of a generally firm US dollar in 2015. So, we continue to see attractive value in Japanese equities whilst being somewhat wary about the yen's prospects."
Byron Wien, vice chairman, Blackstone Advisory Partners, takes an opposing view on Japan equities. He included a pessimistic prediction in his 30th annual "list of ten surprises" for the new year, which was released yesterday:
"Shock and awe no longer works in Japan," Wien predicts for 2015.
"The recession which began in the third quarter of 2014 continues throughout 2015 in spite of further fiscal and monetary stimulus and the suspension of the second planned sales tax increase. The Nikkei 225 is flat for the year in yen and down in dollars."