Bank of Japan's actions seen to benefit other countries
Monday, May 06, 2013
Bank of Japan is confident about a large- scale bond-buying program and achieving 2 percent inflation within two years.
But I still think the BOJ's actions will ultimately benefit other countries while doing more harm than good in Japan.
Do you know how much the yen index has dropped this year? About 11.46 percent. How about the Nikkei stock average? It has surged 31.73 percent.
On this basis, overseas investors buying Japanese stocks can still see about 20 percent profits this year. The yen index slipped 4.66 percent last month while the Nikkei jumped 14.08 percent. If foreigners started to invest in Japanese stocks a month ago, the return would be less than 10 percent.
However, what if Japanese investors switch the funds to the dollar, and invest in US stocks again? The US dollar rose by about 13 percent to the yen, and the S&P 500 has advanced 12.02 percent this year.
Japanese investors converted yen to dollars, and then invested in US stocks at the beginning of the year. They have enjoyed a more than 25 percent return - even better than investing in Japanese stocks.
If they invested in US blue-chips such as Boeing, Hewlett-Packard, Johnson & Johnson, or Disney, returns would be even better.
The absorption of the majority of Japanese government bonds by the central bank also forced domestic investors to look for overseas markets.
If funds continue to flow overseas, the effectiveness of the Japanese central bank's bond-purchasing program will be gradually weakened.
The Japanese economy will be dented, and it may benefit the United States and other countries. My only concern is whether Japanese funds flow to the Chinese market. Andrew Wong Wai-hong is an independent commentator on financial markets.