Last week the “Fed” confirmed its previously broadcast policy of reducing its Quantative Easing programme. This was on the assumption that the American economy would continue on its road to recovery. The markets around the world fell on the receipt of this news. Quantative Easing has funded the purchase of Bonds around the world lifting the prices and lowering the yields. If this is now to be reversed then as Bond yields rise then Interest rates may also follow suit bringing pain to borrowers and mortgage holders. This will not be good news in the United Kingdom where many of the population are householders.
Another consequence of reducing the amount of American Quantative Easing could be the strengthening of the value of the dollar and this in turn might lead to a reduction in the price of gold bullion. One would also expect the cost of American exports to rise but the falling costs of energy could well offset this for manufactured goods. Imports of course will become cheaper. It is going to be very interesting to be a spectator watching these events takes their course.
Japan has announced that it intends to continue with its programme of Quantative Easing regardless of the action taken by the Americans. They still intend to continue kick starting their economy by reducing the value of the yen and introducing inflation into the economy. This will be a double bonus for the Japanese manufacturers who are selling into the American market or any market that operates in American dollars. As a consequence the Nikkei will perhaps reverse its recent fall and move back onto its previous upwards trend. It must be worth watching the Saltydog numbers to see what actually takes place.