Takeshi Fujimaki, a former advisor to investor George Soros, predicted in a recent interview that once investors see through the Bank of Japan’s camouflage and really get a grip on Japan’s fiscal deficit, the yen will spiral out of control to 200 to the dollar and beyond.
However, the banker turned opposition law maker predicted the dollar will strengthen and recommended holding assets denominated in the U.S. currency.
Yen could drop to 140 next year
As reported by ValueWalk, Soros Fund Management profited from betting against the yen, after the Bank of Japan surprisingly boosted its stimulus further in October. Moreover, Japan’s Government Pension Investment Fund (GPIF) unveiled new portfolio allocations, which would double its investments in domestic and foreign stocks. The double dose of stimulus of BOJ and GPIF caused the yen to fall against the U.S. dollar.
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It was reported Soros Fund Management profited hundreds of millions of dollars from betting against the yen. Others, including Discovery Capital Management and Eton Park Capital Management, also reportedly gained from betting that the yen would fall.
In his interview on December 1 in Tokyo, Fujimaki, a former advisor to George Soros, said: “We’re still at the early part of the yen’s large-scale depreciation”. He predicted the currency will drop to 140 to the dollar next year.
BOJ can’t camouflage Japan’s default risk
Japan’s Prime Minister Shinzo Abe called an election in December to seek public support for his decision last month to postpone a sales-tax increase by 18 months. Recent official data unveiled November 28th showed consumer prices excluding fresh food increased at an annual rate of 2.9% in October, slowing from 3% the previous month.
However, in his interview Fujimaki said: “The BOJ used consumer prices as an excuse to add stimulus and continues to hide that it’s monetizing government debt”. He added: “But the truth is that Japan will default unless the BOJ continues to buy JGBs even after inflation accelerates beyond its intended target”.
Drawing parallel to Milton Friedman’s example of executing monetary stimulus by dropping cash from helicopters, the former advisor to Soros said: “The U.S. ended tapering and stopped dropping helicopter money, while Japan is forced to continue to prevent a fiscal default”. He added: “The BOJ’s QE will cause bad inflation or hyper inflation”.
Though Moody’s Investors has trimmed Japan’s sovereign rating from Aa3 to A1, the fifth highest investment grade, Standard & Poor’s has maintained its view since October. While S&P rates Japan at AA-, equivalent to the Aa3 level at Moody’s before the reduction, Fitch Ratings has Japan at A+, the same as the new rating from Moody’s.
Thanks to the BOJ buying Japanese government bonds and reducing borrowing costs to below zero on notes maturing in two years or less, the yen has dropped over 20% since April 2013.