The Bank of Japan increased bank reserves from 6 trillion yen ($51 billion) to 30 trillion yen ($256 billion) in 2003. Last month, they announced this liquidity will be removed by the end of June.
What was done with the money? Unlike Americans, the Japanese did not borrow it from their banks. Foreigners did. Foreigners borrowed these yen, and bought stocks, pushing up the stock market in Brazil, Turkey, South Korea, Singapore, etc, and bought US bonds, pushing down bond yields.
The article’s reference to assets is later clarified to mean equities and bonds.
“As Japan’s excess liquidity is mopped up, investors that borrowed Japanese yen to fund investments in other countries will find it impossible to renew their swaps. Because international currency and interest-rate swap liquidity is very concentrated in tenors of one year or less (the life of a swap is called its tenor), the majority of these swaps will mature this year. Consequently, investors will be forced to sell the equity and fixed-income assets that these swaps financed. In addition, these investors will have to buy yen to repay their yen loans.
The end of quantitative easing is another factor that will propel a sharp correction in global investment asset values this year. It will also produce substantial yen appreciation against most currencies.”
