Dividends and Bank of Japan boosts stimulus efforts

We all listen to the updates from the White House and the President who says he is a cheerleader, says the US will have a V shaped recovery. Noting cheerleaders are on the sidelines, the players are on the field, what are other countries doing? The virus has affected the world and everyone is doing the same thing – social distancing, economies half shut down and wearing masks are required to go outside.

In an article by Leika Kihara and Tetshushi Kajimoto of Reuters, the Bank of Japan expanded its monetary stimulus and pledged to buy an unlimited amount of bonds to keep borrowing costs low as the government tries to spend its way out of the growing pain from the virus.

The Bank of Japan is doing what most other central banks around the world are doing. The bank will boost 3 fold the maximum amount of corporate bonds and commercial paper it buys to $20 trillion yen or $186 billion. The bank says it will buy the necessary amount of government bonds without setting an upper limit in order to keep interest rates near 0%.

The bank also offered financial institutions 0.1% interest rate to fund them, to encourage banks to lend to cash strapped firms.

Linking to dividend paying stocks, if central banks are going to these measures do you really believe the lifting of the restrictions will send consumers buying vehicles, furniture, clothes and leisure items? In all downturns cash flow is king, does the company have the cash flow to ensure profits?

There are more questions than answers, till the next time – to raising questions.

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