Japan Goes for Massive QE
November 1, 2014 • 9:25AM

Just as the US announced an end to its QE, and Europe's ECB is being pressured to launch its own QE as the banking system unravels, the Bank of Japan shocked global financial markets on Friday by expanding its already voluminous stimulus spending — with none of the increase in real investment — and for the first time putting much of it into foreign rather than domestic stocks and bonds, creating a new flood of liquidity for speculation.

Japan says the reason for the surprise move is that its effort to end deflation through stimulus isn't working and the physical economy is not picking up — so, more of the same. But the timing with the western financial moves would indicate that it is coordinated with New York and London.

Both the Bank of Japan and the huge Japanese pension system are part of the action. BoJ Governor Haruhiko Kuroda announced that the Bank will triple the pace of its buying of stock and property funds, extend the average maturity of its bond holdings by three years to ten, and raise the ceiling of its annual Japanese government bond purchases by $267 billion to $714 billion (about $60 billion per month), buying not just more government bonds, but also stocks and real-estate funds.

On the same day, the government announced a plan to radically change the $1.2 trillion investment portfolio for the Government Pension Investment fund, pulling funds out of Japanese government bonds and raising the share of its assets in Japanese and foreign stocks by more than 10 percentage points each. The pension fund, together with the Postal Bank, both offer low but thoroughly dependable returns to savers and pensioners by NOT speculating but making the huge fund available to government investments, which has been the backbone of Japan's historic growth without foreign indebtedness. That is increasingly being dumped.

In a rare split decision, the BOJ Board almost voted down the new QE, voting 5-4. Stock markets skyrocketed, the expected Viagra response.

Prime Minister Shinzo Abe launched his first stimulus soon after taking office in 2012, but it was primarily purchasing government bonds and investments in physical infrastructure. It worked to stimulate the real economy, but faltered this year, especially after Abe raised sales taxes from 5% to 8% in the spring.

There is no physical investment in the new expanded QE.