Major news hit the wires today. The Bank of Japan is committed to winning the battle against deflation. In an attempt to stimulate their economy and to guarantee an inflation rate of 2%, Japan announced they would pump $ 1.4 trillion in their economy in the next 24 months. As a result of that, the monetary base in Japan would double to 270 trillion Yen ($ 2.9 trillion), according to Reuters. The following two quotes are from the same Reuters article:
The policy was viewed as a radical gamble to boost growth and lift inflation expectations and is unmatched in scope even by the U.S. Federal Reserve’s own quantitative easing program.
“This is an unprecedented degree of monetary easing,” a smiling Kuroda told a news conference after his first policy meeting at the helm of the central bank.
Yen was hit hard today; the euro and US dollar have strengthened significantly against the Yen.
Interestingly, and obviously underexposed and not reported by the mainstream media, gold is literally on fire today … at least in Japan. Yen gold is up 3.3% after the announcement of the Bank of Japan.
Our thoughts on this development:
- It is now a fact that the Yen will go much, much lower in the months ahead. The US and Europe will benefit from this by a stronger dollar. Is it a stronger currency that the US Fed and ECB were aiming for?
- Our political leaders at the Davos meeting at the end of January reassured the world that there is NO threat of a currency war. Things are “contained.” Even Japan stated that “it’s not deliberately trying to devalue its currency, saying the yen’s decline has more to do with a market correction following a period of strength.” (source: CNN Money) Well, two months later Japan fires the largest monetary shot ever. This must be the official start of the global currency war.
- With Japan now officially on the inflationary path, UK close to the same direction, Europe on austerity, China somehow in-between, it is clear that the US will be the winner (or loser) of the currency war. If the US Fed does not like it, they will need to stimulate even more. “QE to infinity” was used more than a year ago by Jim Sinclair (Mr. Gold); it appears he knew what he was talking about.
We wrote back in January that Yen Gold was at all-time highs driven by monetary stimulus (courtesy: precious metals strategist K. Xeroudakis). It now appears that was a warming-up exercise.