So naturally, Japan captured investors’ attentions when it announced in 2012 that it would vastly increase the asset purchases of its central bank... And its central bank – the Bank of Japan – wouldn’t just buy Japanese government bonds... Japan was the first major economy in the world to see its central bank begin to buy huge amounts of stocks . $30 billion or so per year. In an attempt to make sure these purchases weren’t politicized, the bank explained it wouldn’t buy stock directly (it wouldn’t pick stocks). It would only buy via exchange-traded funds that allocate capital according to the structure of various preexisting indexes. As you’d imagine, this policy has produced a boom in Japanese stocks. And it has attracted a lot of “hot money” from around the world. Buying Japanese stocks between 2012 and 2016 (as they doubled) was virtually risk-free, thanks to the size of the Bank of Japan’s
campaign. As Jesper Koll, who runs fund sponsor and asset manager WisdomTree Japan, explained to the Financial Times : “ There was no other equity market in the world that covered this sort of fundamental downside protection.” There’s little doubt these huge moves will continue. Last year the Bank of Japan announced it would double its purchases of shares, spending at least 6 trillion yen ($60 billion) on stocks. John Law would be impressed. But remember... About a year after the Mississippi Company went public, food prices began to soar. To stop the runaway inflation, Law had to raise interest rates. That pricked the bubble in Mississippi’s stock. Within a few weeks, the whole scheme collapsed. Food prices soared another 60%, the king outlawed gold, and shares of the Mississippi Company collapsed. YOU CAN’T PRINT PROSPERITY Keep a careful eye on the markets, and especially on the outlook for inflation. It’s
coming. And in the meantime, look at Fast Retailing (9983.T) on the Tokyo Stock Exchange. If you’ve ever seen a pro golfer wearing a brand you can’t pronounce (UNIQLO), then you’ve seen the company’s products. Golfer Adam Scott, for example, is sponsored by UNIQLO, among other major athletes.
You can think of the business as something like the “Japanese Under Armour,” a fast-growing sports apparel business. But unlike Under Armour (UAA), which has very few stores (just 29), Fast Retailing continues to invest heavily in actual physical locations. It has opened more than 1,000 stores since
16 | June 2017
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