I wanted to share a recent film documentary (link below) which I found intriguing. This film documentary is an adaptation of Richard Werner’s book “Princes of Yen”, a bestseller in Japan in 2001. In his book, Richard Werner makes the assertion that the Bank of Japan (BOJ) purposely created both the Japanese asset bubble in the 80s and prolonged the subseqent recession in the 90s in order to achieve their agenda for a economic restructuring of the Japanese economy; which the BOJ believed would put Japan on a more sustainable growth footing.
For me, not only was this story captivating but it highlighted the immense power of the central bank. By virtue of being able to control the supply of money, central banks have the power to move markets which can lead to societal change. Other point of interest for me was that the economic structure that drove the high growth rates experience in Japan after the war was actually a government guided market system which did not place shareholder’s interest first. In such a system, it would be foolish to assume that the same principles for successful investing in a free market would also work here.
Although I don’t invest on the back of interest rate predictions, I still believe that a broad understanding of monetary policy (and credit cycles) is helpful in understanding the overall market valuation levels; it is a big piece in the puzzle.