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Japanese Capital Flows Shifting to USA

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The Japanese central bank announcement that it will buy about 13 trillion yen ($146 billion) in assets per month from January 2014 and set a 2 percent inflation target sounds nice, but it is more likely to stimulate a rise in interest rates than inflation. With the geopolitical concerns rising, Japanese are not confident about the economy or their national security. The idea that this will create inflation is once again one-dimensional thinking ignoring the fact that the Japanese feel more isolated today than ever before. Their concerns about national security are not going to go away and spark a spending boom like the old days.

The real threat is a rise in interest rates will devastate the banking system. It will not take a sharp rise in rates to disrupt the banks. If anything, the decline in confidence has been sending cash to the USA prompting the decline in the yen and the rise in the Dow. Reliable sources from Japan are confirming the shift in investment trends to the exportation of capital but to the Private Sector, more so than to US government bonds.