Pacific Investment Management Co.’s Bill Gross said the Bank of Japan’s goal to reach a 2 percent inflation target in two years using its record bond-buying program may be “unrealistic.”
“Much more depreciation of the yen has to take place to get anywhere to 2 percent,” Newport Beach, California-based Gross said in a Bloomberg Television interview with Sara Eisen and Adam Johnson. “I’m not sure other Group of Seven countries are willing to permit that.”
The BOJ plans to purchase 7.5 trillion yen ($77.8 billion) of bonds a month and double the monetary base, which includes cash in circulation, in two years, the central bank said in Tokyo today. That exceeded economists’ median estimate of 5.2 trillion yen a month and is the biggest move since quantitative easing began in 2001. It’s an initiative to end two decades of economic stagnation and 15 years of deflation.
The yen tumbled 3.5 percent to 96.29 per dollar in New York, recording the biggest one-day drop since Oct. 31, 2011.
Gross, whose company is the manager of the world’s biggest bond fund, also said Japan’s purchase program may force investors into other higher-yielding securities outside of the country, including U.S. Treasuries.
Treasuries may be “ridiculously priced and under-yielding,” Gross said. “For the moment they have decent value relative to some of the other alternatives.”
Treasuries maturing in a decade or longer have been trading at almost the cheapest level in 19 months relative to global peers with comparable maturities. Treasuries yielded as much as 57 basis points more than non-U.S. sovereign debt on March 25, the most since August 2011, Bank of America Merrill Lynch indexes show. As recently as September, U.S. government debt yielded less than the rest of the world on average. The spread was 51 basis points yesterday.
Gross said the most renowned investors from Warren Buffett to George Soros may owe their reputations to a favorable era for money management as expanding credit fueled gains in asset prices across markets, according to an investment outlook published today entitled “A Man in the Mirror,” named after a song by Michael Jackson.
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