Expect spinoffs from Japan's stimulus surge Japan's new approach to stimulating its economy has done wonders for its stock market, but the benefits will likely spread elsewhere too - including overseas. Since November, the Nikkei 225 has surged more than 70 per cent, and it is clear where the gains are coming from: The country's new prime minister, Shinzo Abe, has taken a radically different approach to stimulating the economy and eradicating deflation, in a series of moves dubbed "Abenomics." While the euro zone continues to embrace austerity measures and the U.S. Federal Reserve mulls an end to its stimulus measures, the Japanese government has created a fiscal stimulus package worth more than $100-billion (U.S.). As well, Japan's central bank has doubled its inflation target, to 2 per cent, and embarked upon an aggressive plan to inject $1.4-trillion into the economy through asset buying activities - moves that the bank's governor called "an unprecedented degree of monetary easing." The impact so far has been dramatic. The yen has slumped to its lowest level against the U.S. dollar in more than four-and-a-half years, promising to make Japanese exports cheaper to foreign buyers and give Japanese companies the opportunity to expand their market share. Sony Corp. recently returned to profitability and Toyota Motor Corp."s quarterly profit rose 159 per cent. Some observers believe the impact will spread wider: "I doubt that the main contribution to growth will come from exports," said Lars Christensen, chief analyst at Danske Bank, on his blog. Instead I believe that we are likely to see is a boost to domestic demand and that will be the main driver of growth. No wonder Japanese stocks have enjoyed their best rally in a decade. But the dramatic changes will likely even move well beyond the world's third-largest economy. That's why investors who continue to shun the Japanese stock market for being too volatile (it surged 140 per cent between 2003 and 2007, only to hand back all the gains within two years) should nonetheless be cheering Japan on. Tim Duy, an economics professor at the University of Oregon, believes that the global economy will benefit from Japan's rise because it will force other economies to respond, creating greater economic stimulus worldwide. "If Germany and by extension Europe experiences weaker growth, European policymakers will need to respond," Mr. Duy said on his blog. They are likely to respond by stimulating their domestic economy directly via easier monetary policy and, hopefully, easier fiscal policy. In other words, successful domestically orientated policy in Japan will have second-round effects that will induce further policy easing in Europe. And a good kick in the pants in Europe is exactly what we need right now. For sure, stimulus can't last forever, and there are concerns about what the stock market will do when the world's central banks move in reverse and start to unwind measures meant to boost their economies. However, this concern hasn't yet translated into a retreat from stocks. The Wall Street Journal reported on the weekend that Federal Reserve officials have outlined strategies for unwinding its bond-buying program, or quantitative easing, providing the clearest signal yet that this form of stimulus could be nearing an end. Despite the report, the S&P 500 rose to a fresh record-high on Tuesday. But Japan's influence on the world could be more nuanced. It has long been seen as a model for what can go wrong with an economy, with its decline over the past two decades serving as a depressing template for other economies. Japan's resurgence, though, suggests that the template has an upside.