Monday, July 17, 2006

Bank of Japan Massively Increases Money Supply

The financial mass media does not discuss this major driver of the stock market very much if at all. More specialized sources are only recently beginning to understand the importance of changes in Japanese Money Supply on global asset prices. Fluctuations in the Japanese monetary base dwarf those in the money supply of any other country including the United States. It seems that Japanese monetary policy is far more important than the actions of the U.S. Federal Reserve. Before and during the May decline in global financial markets the Bank of Japan sharply reduced the money supply. Only when they began to increase it again did the collapse in the markets mitigate. Then starting on July 4th the BoJ again withdrew liquidity. On July 14 they increased the current account balance by an unprecedented 40% in one day! If history is a precedent this should trigger a strong rally in the market in coming weeks. The BoJ does, however, plan to reduce the increase, which was unplanned. How do you accidentally create $40billion in high powered money?

This morning the US Dollar is up strongly - this might indicate dollars being bought with those Yen? The Japanese market was closed Monday for a national holiday. I went long QQQQ at 35.88 around 8:15am this morning.

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