Blog : Bank of Japan

by Ed Zwirn on April 4th, 2013

Penny stock investors, like much of the general public, usually view inflation as a threat and a strong U.S. dollar as a good thing.

But an unprecedented move by Japan's central bank yesterday has possibly changed the rules of the game, sending stocks in that eastern nation soaring and plunging the yen to a 3-1/2-year low against the dollar. Both the greenback and euro soared over 3% against the yen on Thursday in their biggest one-day moves since 2008.

New Governor Haruhiko Kuroda committed the BOJ to open-ended asset buying and said the monetary base would nearly double to 270 trillion yen ($2.8 trillion) by the end of 2014 in a shock therapy to end two decades of deflation and stagnation, all in an effort to boost inflation to 2% within two years and stimulate consumer and business spending.

To give penny stock investors some idea of the scope of this move, this puts the Japanese stimulus on an equal level with the U.S. Federal Reserve Bank's $85 billion monthly stimulus efforts, and this in an economy about one-third the size of Uncle Sam's.

While this is basically good news for penny stock investors and others looking for a boost to the global economy, it may prove to be a mixed blessing. By making their currency cheaper relative to the world's other major currencies, the Japanese are putting themselves at an advantage by making their products cheaper to sell overseas, boosting their own exports while hurting others.

For penny stock picks not dependent upon exports, the injection of funds from any source can only help lift all boats. But the move contains within it the possibility of disruption to the global economy, especially if Washington and Brussels retaliate by in effect devaluing their own money.

But it remains to be seen whether a stronger dollar will hurt penny stocks in the U.S., where interest rates - like those of Japan's - remain near zero and inflation - also like Japan - remains almost non-existent. How long can the U.S. economy, which is dependent in large part on exports, continue to gain steam even as prices of the products made in the U.S. go up?

For now, it may be too soon for pickers of hot penny stocks and others looking for stocks to buy to go back to the proverbial drawing board. But it will be interesting to see how the U.S. stock market responds to this latest headwind (or tailwind).