Gold Falls, Stocks Record Highs as Japan Goes ‘Weimar’, “Here Be Dragons”

The Korean policymakers may need to pay  close attention to what has been going on in Japan, as Korea follows Japan's monetary policy to a significant degree.  It would be a long process and the path looks obvious.

From Gold Core:

Stocks globally surged, while gold fell sharply today despite renewed irrational exuberance on hopes that the Bank of Japan’s vastly increasing money printing will fill some of the gaps left by the apparent end of Federal Reserve bond buying. 

The BOJ decided to increase the pace at which it expands base money to a whopping 80 trillion yen ($726 billion) per year. Previously, the BOJ targeted an annual increase of 60 to 70 trillion yen.

The BOJ sailed into deeper uncharted monetary territory with the announcement that they would triple annual purchases of exchange-traded funds (ETFs) and Japanese real-estate investment trusts (REITS) to 3 trillion yen and 90 billion yen respectively. 

The Nikkei surged 5% in minutes to a seven year high after the Bank of Japan decision, while gold fell.

These unprecedented monetary events remind us of the old English mapmakers who used to write on uncharted territories on their maps - “Here be Dragons”.

The BOJ claimed the surprise action was due to concerns that a decline in oil prices would weigh on consumer prices and delay a shift in sentiment away from deflation.

BOJ Governor Haruhiko Kuroda portrayed the decision as a preemptive strike to the ‘lost decade’ economy, rather than an admission that his plan to reflate the long moribund economy has so far failed.

The prime reason for the extraordinary monetary policies is likely that the Japanese economy remains very weak and risks tipping over into a depression. Bankruptcies more than doubled to 214 in the first nine months of 2014 compared with the same period a year ago.
Japan has introduced quantitative easing to stimulate the economy and to spur inflation. But it may backfire and lead to stagflation and in a worst case scenario a German ‘Weimar’ style hyperinflation. 

The yen's real effective exchange rate has dropped to its lowest level since 1982. With Japan easing likely to deepen, the yen may fall to an unprecedented level. Though the fall of the yen may promote exports - energy, food and raw material costs will rise, especially imports.
 

http://www.zerohedge.com/news/2014-10-31/gold-falls-stocks-record-highs-japan-goes-%E2%80%98weimar%E2%80%99-%E2%80%9Chere-be-dragons%E2%80%9D