An investment expert has claimed that the world market is set to be heavily affected by the Japanese government's decision to end its policy of heavy interference in the nation's economy.

The Japanese government has over the space of 30 months ploughed $240 billion into the economy in a bid to stave off the effects of deflation which have haunted the nation almost since the turn of the new millennium.

However, Abbey's head of client investment, John Kelly, has predicted that with Japan finally set to see a resumption of growth over this and the following year, the government will now take a less prominent role, which could affect investment both in and outside Japan.

He explained: Markets thrive on liquidity and so a withdrawal on this scale will have wide effects.

Strong liquidity at low interest rates in Japan has encouraged the carry trade – borrowing in Japan and investing in higher return markets overseas.

Mr Kelly said that the Japanese government must now act carefully, as liquidity must be removed to prevent inflationary pricing and price bubbles, but if it this withdrawal is too abrupt or leads to a loss in confidence, it could prompt a relapse into deflation.

He said that the government will need to draw this liquidity through the sale of investment bonds, but at such a large volume and in a world focused on equities and commodities, these bonds will have to be highly attractive.