However, it's interesting to note that these massive market moves are occuring even though Japan has yet to implement a single new policy.
On January 21, the Bank of Japan announced it would pursue a massive asset purchase plan in its efforts to stimulate the economy. But those programs aren't expected to start until 2014.
This has everyone asking: Is all of the news priced into the markets?
Nomura's
An old market adage advises investors to “buy on the rumor and sell on the fact.” That exchange rates and stocks have moved this far without a single policy being implemented suggests this was a case of “buy on the rumor.”
The question now is whether investors will sell on the fact. I suspect they are wondering about the advisability of betting on the BOJ’s reflationary policies at a time of zero private demand for funds.
Investors have often bought stocks and sold the yen on BOJ easing, but these were almost always cases of buying on the rumor and did not last for long.
This time, however, the government is preparing two more initiatives to strike at the heart of the problems facing Japan’s economy. If they constitute a meaningful policy response, I think it is conceivable that investors would buy on the fact as well.
It is therefore critical for the future of Japan and its economy that the government unveil the second and third pillars of its plan as soon as possible, and that they contain truly substantive measures.
Buy on rumor, buy on fact? We'll find out soon enough.