The scale of the quantitative easing (QE) program proposed by the Bank of Japan (BoJ) is mind numbing. As part of the larger shift in policy by Japan to stimulate inflation, informally known as ‘Abenomics’, the Japanese central bank is planning to expand its balance sheet to the equivalent of over 60% of the country’s GDP. This is roughly double the current size of the BoJ's balance sheet. For comparison, the Federal Reserve's balance sheet is currently equivalent to approximately 25% of GDP. The radical new policies undertaken by the BoJ are likely to have unexpected and perverse effects on global financial markets.
Japanese government bond yields have declined as a result of the actions by the BoJ, which has led domestic Japanese investors to seek higher yields in overseas markets. Japanese institutional investors have turned to purchasing large volumes of foreign debt, which has helped push interest rates lower elsewhere in the world. This explains why interest rates in the United States and in Europe have fallen in recent days despite the ongoing economic headwinds in those regions. These cycles in capital flows usually take months to play out, so investors may not see the full effects of this trend until the third or fourth quarter of 2013.
A weakened Yen makes USEC SWU more expensive for Japanese customers. Will some of their business switch to Russian or European suppliers?