Investment Clock insights

Bank of Japan surprises with 'helicopter money in all but name'

Trevor Greetham

21 September 2016

Japan's review of monetary policy is helicopter money in all but name and it is supportive of our overweight stance in Japanese equities.

Japan has been suffering from excessive debt and deflationary pressure for longer than any other developed market, so we should watch new policy developments in Tokyo with interest.

Today's announcement makes it clear that the authorities are going down the route of explicit financial repression, boosting nominal growth while keeping interest rates near zero at all maturities. The idea is to transfer wealth from savers to borrowers, the government included, to reduce debt burdens and wipe the slate clean.

Monetary policy didn't ease today, as the muted market reaction shows, but the economy isn't weak enough to merit it. If growth turns downwards, the new framework allows Japan to make short rates more negative, increase the monetary base and expand government spending without needing to worry about the markets.

The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested. The views expressed are the author’s own and do not constitute investment advice.