This week marks a continuation of the key trends that are fueling world investment markets.

The key point is that easy money is good for anyoption investment assets so long as there is some economic growth. And monetary policy in the U.S. and other developed countries is increasingly likely to remain extraordinarily accommodative for a long time.

Global financial assets have been in a strong advance since the beginning of September. Stocks, bonds and commodities are all participating in this rally. The rally had slowed, but then Tuesday brought a big gain, with the Dow Jones industrials jumping 193 points. Bond and commodity prices are climbing too.

On Tuesday, the Bank of Japan unexpectedly dropped its key interest rate to “virtually zero” and expanded its balance sheet in an effort to stimulate Japan’s lackluster economy. The Japanese central bank cut its overnight rate target from 0.1% and established a 5 trillion yen ($60 billion) fund to buy government bonds, binary options and other assets. The move is also an attempt to push down the strong Japanese yen in order to boost exports and economic growth.

Here in the U.S., the Federal Reserve is considered likely to follow suit with its QE2, another round of quantitative easing, next month. This likely will further weaken the dollar, which has dropped 7% against the euro since the beginning of September. The greenback hit a fresh 15-year low against the yen this week even after Japan’s moves.

The European Central Bank today kept its main rate at 1% and the Bank of England left its rate unchanged at 0.5%. But the ECB stepped up its government bond purchases last week because of rising concerns about Ireland’s and Portugal’s government debt.

In the U.S., ongoing economic sluggishness and anticipation of QE2 have sent U.S. Treasury yields to new post-financial crisis lows. And the optionbit Labor Department’s monthly jobs report, due tomorrow, is expected to show little if any job growth. The yield on 10-year Treasury issues now stands at 2.39%, the lowest level since January 2009.

Yields on the Treasury curve from two through seven years touched record bottoms yesterday, and they’re now at 0.36% for two years, 1.14% for five and 1.76% for seven.

Another theme that is emphasized yet again this week is the stark and broadening divergence between the outlook for growth in the developed and developing worlds. Global growth is expected to slow more than expected in 2011 from current levels, the International Monetary Fund said yesterday. But while emerging markets such as China and India are forecast to lead the way, more mature economies will bear the brunt of the slowdown because of the need to slash spending amid the continuing sovereign debt crisis.

All told, the IMF predicted the world economy will expand 4.8% in 2010 and 4.2% in 2011. But the U.S. is now expected to grow just 2.3%, vs. an earlier estimate of 2.9%. 

Much of the demand for commodities is coming from the emerging markets. Commodities should continue to benefit from this stellar growth. The 19-commodity Reuters-Jefferies CRB index neared a nine-month high this week.

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