Having written the markets felt very odd just a few hours ago, it all seems very surreal now.
Calculations about the extent of Japanese QE show as a percentage of GDP it is the biggest bazooka ever and effectively they appear to be intent on monetizing their national debt, while also pumping a fortune directly into hard assets. The implications for the Japanese state pension fund, which is committed to adding risk to its portfolio, is scary and frankly without precedent. This is an interesting experiment for a country with terrible demographics.
While some market participants are cheering all the new free money cooler heads are very worried, with very serious economists talking about Japan heading towards financial Armageddon.
Time will tell, although SocGen’s marvelous Albert Edwards published a note yesterday which is now looking very wise as he ended thus:
“The pressure on an overconfident Kuroda (President of the Bank of Japan) to act to expand QE is rapidly increasing. Japan is key as the next phase of currency wars moves ever closer”
How China and Germany respond will be interesting, as will the reaction of financial markets once they have stopped cheering and digested the news of more deflationary pressure in the global economy, just as asset bubbles blow higher.
All very…..errr…. exciting?