Tags: Axel Merk | Yen | Japan | Worthless

Axel Merk: 'Yen Is Going to Be Worthless'

By David Nelson and Dan Weil   |   Thursday, 21 Mar 2013 08:15 AM

Japan stands on a path toward victory in the global currency war, with the yen set to fall a long way, says Axel Merk, president of Merk Investments and a Moneynews contributor.

“The market will take the yen to [zero],” he tells the Financial Braintrust Alliance in an exclusive interview.

“That means the yen is going to be worthless. We published a piece last November whether the yen is doomed, with a question mark, and we’ve since removed the question mark.”

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Editor's Note: A full, unedited version of this interview is available exclusively to Financial Braintrust Alliance subscribers. Visit www.fbtalliance.com for more information and to sign up.

The dollar hit 96.71 yen March 12, its highest level since August 2009.

It pays to look at Japan’s political history to understand the yen, Merk says. “In the past, the yen was strongest the more dysfunctional the government was,” he explains.

“A dysfunctional government is a government that can’t spend money, a government that cannot exert pressure on the central bank [to ease].”

Editor’s Note: Put the World’s Top Financial Minds to Work for You

But now the government of Prime Minister Shinzo Abe is strong, with a two-thirds majority.
It wants fiscal stimulus. “So more spending,” Merk says.

Abe also seeks plenty of monetary stimulus, and he has a new Bank of Japan Governor, Haruhiko Kuroda, to implement it. “So there’s going to be more fireworks,” Merk says.

The country can no longer finance its massive debt – more than 200 percent of GDP – internally, he says. So, “Japan is going to be at the mercy of the markets,” he states.

“The policymakers don’t get that. They don’t understand it. So they’ll do their saber rattling, they’ll print a great deal of money.”

Put that all together, and “the dynamics for the yen have changed,” Merk says. “That’s why we think this [yen weakness] isn’t just a trend. Sure, there will be rallies. There might be violent rallies. But, in our view, there’s no way that the yen can survive this.”

Looking at the global currency war, governments should realize, “it’s not a path to prosperity when you debase your currency,” Merk says.

“Your next quarterly earnings might go up, but your competitive position is eroding. Foreigners will buy up your assets, and you’re giving [their] companies a free pass.”

In Japan, for example, the problem isn’t a strong yen, but rather Japan’s failure to innovate in recent years, Merk says. “They haven’t had the culture to invent the iPhone or the iPad.”

In Europe, meanwhile, the European Central Bank’s easing isn’t hurting the euro much because the ECB is “mopping up” the excess liquidity it is creating with its easing, Merk says.

“That’s one of the reasons they have so much pain over there, and that’s because the central bank is much less in control, . . . with banks giving back loans from the European Central Bank.”

Editor’s Note: Put the World’s Top Financial Minds to Work for You

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