I was on Fox Business News earlier today discussing Japanese monetary policy and the outlook for Japan in general. It’s always hard to get the full argument in on these short segments, but here’s the basic summary of my position on Japan and what the BOJ is doing:
- The BOJ is targeting nominal wealth via stock prices.
- While the BOJ can drive stock prices higher in the short-term, their policies must ultimately impact the underlying cash flows of the actual companies that comprise the equity indices that have been driven higher.
- If the BOJ is unable to create a sustainable impact on the fundamental corporations then the policy simply distorts the market by creating a disequilbrium between what investors expect from corporate cash flows and what they can actually deliver.
- The “race to the bottom” is a modestly effective short-term strategy, but ultimately cannot be expected to succeed in an environment where all central banks are trying to devalue.
- Japan’s long-term economic outlook remains challenging. If you’re going to allocate your portfolio to Asia I have to ask myself – “why invest in a bad house in a good neighborhood”?
If you want to see the full piece see below:
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.