Japan’s monetary base is continuing to shrink, how can we profit from that

Investors should be wary of the never-ending slowdown in growth of Japan’s monetary base. The April reading came in at +7.8% y/y, the slowest pace since November 2012. Despite Kuroda’s assurances of his commitment to hitting the 2 percent inflation target, the rate of bond purchases continues to slow. The debate over when the BOJ will officially exit monetary easing rumbles on but the hard evidence hints at the constraints the bank is facing.

Contracting of the monetary base will limit the amount of purchased government and corporate bonds by the central bank. If the flow of cash in the economy is down, it will support the JPY. Profit opportunities consist of 2 guidelines. With long-term shrinkage, the JPY will rise and we can profit if we are in a long JPY position. Another possibility is to short Japanese export-oriented companies. Japanese manufacturers will be most hurt by rising currency.

Source: Bloomberg Pro Terminal

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