Japan Trade has a long....very long way to go....

When monetary experiment of historic proportions are undertaken, impact lasts far longer than most realize...
O Ashuji...

Volatility usually occurs at inflection points in asset markets...
O Ashuji

Before getting into, how historic monetary policy has been (which has been discussed by most experts), lets have a look at price behavior of Nikkei 225. Nikkei's major move began from November 2012, hence price move is considered from that period.

Nikkei's Movement (%)

Large part of the Nikkei's move came before actual policy announcement, since present day central bankers believes in transparent communication policy.

Post Policy announcement, Nikkei is up just 7%, though recent high was up 24% from policy announcement.

If policy was historic in terms of quantum as we shall see, move is likely to last longer in terms of duration. It is unlikely to get over within couple of months.

Nikkei's daily % moves since November 2012

One can observe gradual increase in larger moves aka volatility. 

Volatility has largely increased post policy announcement. 

In Last 8 trading session, Nikkei had move >3%, 4 times. All of them were negative and 2 were greater than 5%. This is heavy clustering of big moves. Clustering of Volatility would imply, big moves are likely to continue and given the fact that all moves have been on downside, probability of big positive moves is higher. 


Putting Monstrous Monetary Experiment in Some Context....

Bank of Japan (BoJ) double Japan’s monetary base from Y135 trillion ($US1.43 trillion) to Y270 trillion in two years. This will be achieved by stepped-up purchases of long-term government bonds, lifting the average maturity of its holdings from three to seven years.

The BoJ will expand its balance sheet by the equivalent of 1 percent of gross domestic product (GDP) every month for the remainder of this year and by 1.1 percent per month in 2014. This is around double the rate of expansion of the US Federal Reserve’s holdings, which are growing by about 0.54 percent of GDP each month through the US Fed’s quantitative easing program.

"The Bank of Japan is buying assets at roughly 75 percent of the rate of the U.S. Fed, on an economy that's one-third the size of the U.S." - Kyle Bass, Hayman Capital. 

I believe Kyle Bass is one of best in terms of getting bigger picture of Japan. One may or may not agree to his call but statistics are irrefutable. For more on Japan from Kyle Bass, please follow the link http://www.youtube.com/watch?v=7kFcDKBpdII

 Conclusion

Given the massive and historic nature of monetary experiment undertaken by BoJ , Nikkei's move has a long way to go. Life of such massive policy push is likely to be few months if not few quarters. Understanding fundamental implication of a Ponzi scheme is meaningless. 

Nature of correction within couple of months of policy announcement will ensure, up move has long way to go. Recent correction is clearing extremely over crowded trade since policy announced in April, 2013.