It's official. The Bank of Japan today announced specifics for direct purchasing of Japanese exchange traded funds (ETFs) and real estate trusts (J-REITs).
As part of a 35 trillion yen ($430 billion) asset purchase program, the Bank will begin buying these "risk assets" on the Japanese stock market. Under the new rules the BoJ will be allowed to purchase up to 5% of individual J-REITs. No cap has been set for ETFs, save for the caveat that the purchases would "roughly be proportionate to the total market value of that ETF issued."
Under the rules, such purchases could amount to billions of dollars. A huge injection of new cash directly into the stock market.
Many of the world's governments are struggling with quantitative easing. They're printing money, but it's getting stuck in the banking system rather than getting to people who can spend it.
With this purchase program, Japan is taking things a step further. Putting new money directly into the pockets of investors.
This is a big test of new ideas in monetary policy. If it works, it could create price inflation affecting all goods including commodities. Keep an eye on this one.
By. Dave Forest of Notela Resources