Why Japan’s Nikkei freak show should scare off Chinese investors

07:43

From economic ‘miracle’ to cautionary tale: Japan’s development and recession

16:50

Can China learn lessons from Japan’s ‘lost 30 years’?

All the unusual market phenomena today stems from bloated balance sheets at major central banks such as the US Federal Reserve and the BOJ. The Fed is shrinking its balance sheet by US$95 billion per month, which is small compared to the trillions of dollars in quantitative easing following the 2008 financial crisis.

Both the Fed and the BOJ need to shrink their balance sheets as the public’s negative reaction to inflation is starting to cast doubt on their policy decisions.

The liquidity tide is beginning to go out, and the party in the Nikkei is probably at its end. Speculators have not noticed yet, but when the tide goes out – possibly later this year – it will trigger a stampede. Many Chinese who got rich speculating on China’s bubbles won’t be so wealthy when they lose their shirts on distant bubbles.

Andy Xie is an independent economist