NEW YORK (MarketWatch) — Bank of Japan’s plan to expand its bond-purchase program, announced on Friday, delivered a big dose of euphoria to stocks around the world.
However, the Government Pension Investment Fund’s plans to increase stock purchases in addition to the expansion of the central bank’s bond-purchase program, likely will be a boon for U.S. stock markets over the longer term, said Citigroup chief equities strategist Tobias Levkovich, in a note to investors.
The Japanese Pension Fund plans to increase its holdings of foreign stocks to 25% of its monetary base, from roughly 16% currently. This expansion would benefit U.S. equity markets over the course of next year as Japan’s investment kicks off, Levkovich notes
“While the exact amount of money coming to the U.S. is hard to calculate, the overall contribution to non-Japanese stocks could approach $60 billion of new purchases and we suspect that half could make its way into the U.S. by the end of 2015,” the note said.
The BoJ’s decision to bump up their bond purchases sent a signal to markets that central banks will keep fighting deflation. The action weakened the yen, helping Japanese exporters, who are crucial to the country’s economy.
While Japanese stocks benefitted from the monetary policy, it is aimed primarily at ending disinflation and to speed up economic growth. It’s a move likely to aid the U.S. too, given its close trading ties with Japan.
While Levkovich and team did not make any changes to their year-end 2014 target of 2,000, they wrote “it would be remiss to ignore the possibility that stocks trade higher” but warns “if that were to occur, however, it may just be borrowing from next year’s returns.”
