Remember when everyone was freaking out about the huge sell-off in the stock market in the last couple of weeks or so? Well, it’s the Bank of Japan’s fault.
(By the way, I like MSN Money’s new look.)
First of all, not everyone was freaking out. The media and a few blogs made it seem that way, but it didn’t seem to affect most people. Tons of people were convinced that the sell-off was due to fears about out-of-control inflation. This line was repeated everywhere I looked.
Jim Jubak says that the fears about inflation were not enough to send the stock market spinning.
[T]he Bank of Japan has been taking huge amounts of liquidity out of the global capital markets. In an effort to re-inflate the Japanese economy and end the years of deflation that had kept the country mired in a no-growth swamp, the Bank of Japan had pumped billions into the country’s banking system. Now that the economy is finally growing again and now that prices aren’t sinking any longer, the Bank of Japan has … started to remove some of that cash from the financial markets…
The Bank of Japan isn’t finished pumping out the liquidity that it had pumped in. That should take a few more months.
Jim forecasts a volatile market for the rest of the year, as we experience more “speculative momentum” followed by corrections.
Updated May 29, 2006 and originally published May 28, 2006. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @flexo on Twitter and visit our Facebook page for more updates.