Japan Resorts to Buying ETFs and REITs to Prop Up Stock Market; Will Fed Eventually Do the Same?

The Japanese economy is a prime example of what happens when central bank–infused “economic growth” crumbles.

Quantitative easing may have been needed in the U.S. economy when the financial system was on the verge of collapse, but artificially low interest rates and vast amounts of paper money printing could be creating major troubles for our future, just like it did in the Japanese economy.

The Bank of Japan and the Japanese government have taken a strong stance on bringing economic growth to the Japanese economy. The Bank of Japan has taken the concept of quantitative easing to a new level, and it plans to continue increasing the country’s money supply. Similar to what’s happening here in America, the Bank of Japan is printing new money to buy government bonds. Japan’s central bank has become heavily involved in the stock market of the Japanese economy by buying units in exchange-traded funds (ETFs) and real estate investment trusts (REITs).

Sadly, the outcomes of this rigorous quantitative easing are dismal. The Japanese economy isn’t improving. Rather, the currency of the country has become a major victim, and the stock market in the Japanese economy is bursting.


Take a look at the chart below, which shows the value of the Japanese yen (black line) declining continuously, while the stock market is rising and bursting (red/black line).

 NIKK Tokyo Nikkei Average Chart

Chart courtesy of www.StockCharts.com

On May 23, the stock market in the Japanese economy took a turn downward; since then, it has been declining quickly.

When I look at this, it makes me question the stability of the key stock indices here in the U.S. economy. The Federal Reserve is still going ahead with its quantitative easing and printing $85.0 billion a month to spur economic growth. As a result of this, the stock market has risen significantly, giving investors a false idea about prosperity here in the U.S.

I still continue to be skeptical about the rise of the stock markets in the U.S. economy. Many are questioning whether the rise in American stock markets is a direct result of the Fed’s quantitative easing program.

The stock market in the Japanese economy tumbled more than 3,000 points in a matter of weeks as its bubble burst; it wouldn’t be a surprise for me to see the Dow Jones Industrial Average do the same.

What He Said:

“Consumer confidence does not change overnight. In the U.S., 70% of GDP is based on consumer spending. And in my life, all the recessions I have seen or studied have only come to an end when consumers started spending. With consumer sentiment getting worse, and with the U.S. personal savings rate at near record lows, it may take two or three years for consumers to start spending again.” Michael Lombardi in Profit Confidential, February 25, 2008. By the end of 2008, the rest of the world was realizing the recession would be much longer and deeper than most had realized.