Bank of Japan Caves In - Again

I don’t agree with the BoJ’s decision to cut from 0.3% –> 0.1%. The cost of borrowing is not the problem here. In fact, the impetus to cut was at least partially pressure from the MoF, in what amounts to a silly attempt to ease yen-strength. The reaction has been muted, and for now, the USD/JPY isn’t likely to even recover a 90-handle.

So we have a SNAFU and unfortunately what appears to be the backdrop for a revisit to all out QE. In addition, the government is said to be eying taking stakes in banks again. No doubt history repeats, but this fast? Japan’s (inaccurately) so-called “lost decade” is poised to become the lost quarter-century. Deflation lives on.

The only potential I see coming out of all this is with a strong yen and an ever-lower cost of capital, the ability to pursue outbound M&A. But why risk jumping the gun by buying now, when global economic conditions continue to deteriorate?

Comments

[investor88:]

Steven is wise when he says "why risk jumping the gun buying now when global economic conditions continue to deteriorate?".

Look to the sovereign wealth funds who tried to rescue the western banks and then lost chunks on their investments when they "invested for the long term" this year. So now people might say prices alreaddy so low must buy, cash is trash. I am afraid this may not be so, a view expressed by Steven.

In time there will be indeed be great buying opportunities but it could be months or years and years away. What is sure is that there will be sharp rallies and falls from time to time in the journey forward which may suit traders.

2008 Dec 19 06:40 PM