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Japan's Stimulus Opens the Yen Floodgates

By Dan Carroll - Apr 5, 2013 at 8:00PM

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The Nikkei rises more than 3% during the week, as financial stocks surge

It's been an exciting week across the Pacific, to say the least. Japan shocked the world with its massive stimulus program announced recently, and the Nikkei (NIKKEIINDICES: ^NI225) responded positively by soaring to gains of more than 3.6% over the past five days. Will stimulus be enough to end Japan's deflationary stagnation that has stuck about for the past two decades? Only time will tell, but for now, investors and financial firms are brimming with optimism.

Firing a stimulus broadside
New Bank of Japan Governor Haruhiko Kuroda announced earlier in the week that the country's central bank would begin buying government bonds to the tune of 50 trillion yen -- or $520 billion -- per year. The BoJ is poised to double the country's money supply by the end of next year, as Japan unleashes its biggest salvo yet in the war against deflation and economic stagnation. Considering that inflation since prime minister Shinzo Abe entered office has sent the Nikkei roaring to multi-year highs, Japanese stocks are poised to soar even higher on this far more aggressive move. The iShares MSCI Japan Index (EWJ 0.60%) ETF has capitalized on the weakening yen by pulling in more than 10.5% in the past three months, racing higher on the back of a trend that Abe isn't looking to slow down any time soon.

Not everyone's happy, however. Some Chinese economists have speculated that Japan's monetary easing will spark a new currency war with other leading economists, such as the U.S., also running stimulus programs. Although the easing could hurt China's exports into the nation, other observers have praised the move. Billionaire George Soros told CNBC that Japan's new easing policy provides a way for the third-leading economy to "escape after 25 years of slow death," although Soros also pointed out the dangers possible with such a drastic plan.

Nonetheless, financial firms in Japan are applauding the move. Shares of Mizuho Financial Group and Nomura Holdings took off over the past five days, with each stock gaining more than 9%. Shareholders of Mitsubishi UFJ Financial Group did even better, however: The stock exploded for an astronomical 15% gain over the last five days alone, wiping out what had been a year-to-date loss in just one week.

Other signs from these financial giants point to Japan's economic growth. Nomura recently hired the most new college graduates in four years, as it looks to boost its domestic retail operations. Mitsubishi and Mizuho also plan to raise their hiring numbers in 2014. The companies' moves are part of a wave of confidence in Japan's financial industry, as business optimism returns to the country, and investors look to take part in the Nikkei's unmatched rise. The new stimulus measure should only keep these companies moving forward at a torrid pace as the weak yen fuels Japanese businesses' success.

In short, it's a good time to be a Japanese investor.

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