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What Singaporean Investors Need to Know about the Bank of Japan’s Latest Policy Stance

31 October 2014 marked the day the Bank of Japan unexpectedly proclaimed that it would inflate its asset-buying program by as much as 20 trillion yen per year. This meant that the BOJ would now be buying 80 trillion yen (that’s around S$880 billion) worth of Japanese bonds annually.

The central bank also said that it would “triple annual purchases of exchange-traded funds and Japanese real estate investment trusts to 3 trillion yen and 90 billion yen respectively,” according to Bloomberg.

The surprise announcement by the BOJ last Friday was in stark contrast to the U.S. Federal Reserve. While Japan’s central bank was eager to pump ever more yen into its economy, the U.S. central bank had decided to put an end to its own asset-buying programme in October after being satisfied with signs of America’s economic recovery.

Why was an expansion considered?

Back when Shinzo Abe, Japan’s current prime minister, took office on December 2012, he rolled out stimulus programs to reinvigorate the stagnant Japanese economy and to end persistent consumer price declines which had taken root since the 1990s. One of Abe’s key lieutenants, Haruhiko Kuroda, the BOJ’s governor, even promised to do all that it takes to drive inflation in Japan to 2%.

However, with Japan’s economic output contracting sharply in the second quarter of 2014, the revival plan seems to be faltering. Therefore, despite “insisting for more than a year that its aggressive monetary action was sufficient,” according to The New York Times, the Bank of Japan had sprung a major surprise with its announcement last Friday.

The BOJ’s expansion of its asset-buying programme is done in the hopes that pumping more money into the economy can lead to lower borrowing costs, which in turn encourages spending, thereby driving up inflation and economic growth.

Ripple effects

The unprecedented move stirred markets worldwide, and appeared to help push stocks higher around the world (keeping in mind the possibility that the markets’ moves are correlations, and not causations). In Japan, the Nikkei 225 ended last Friday with gains of 4.83%; in the U.S., the S&P 500 rose 1.1%; while in Singapore, the Straits Times Index (SGX: ^STI) closed last Friday with a 1.2% increase.

The foreign exchange markets also felt the ripple effects of the BOJ’s move as the yen fell to more than 112 per U.S. dollar, a level not seen since the end of 2007. If the U.S. continues to show economic growth, then there could be more weakening of the yen to come.

Exposure to Japan

For investors looking to tap into possible economic growth in Japan, there are actually up to 14 ways to do so in Singapore’s share market. That’s because there are 14 shares listed here which derived at least a fifth of their revenue from Japan for their last financial years. These 14 shares include IPC Corporation Ltd (SGX: I12) and the blue chip, Global Logistic Properties Ltd (SGX: MC0). The former owns business hotels and condominiums in Japan while the latter provides logistics infrastructure services in China, Japan, and Brazil.

Share % of Revenue from Japan in last financial year
IPC Corporation 99.9%
Global Logistic Properties 38.7%

Source: SGX.com

Investors in those 14 shares might want to keep a close eye on how the situation in Japan changes.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor James Yeo doesn’t own shares in any companies mentioned.