Tags: Soros | Japan | Easing | Backfire

Ex-Soros Adviser: Japan’s Bet on Massive Easing Will Backfire

Sunday, 14 April 2013 07:32 PM

The Bank of Japan’s “huge bet” by boosting quantitative easing won’t turn the economy around and is instead sending the nation toward default, said Takeshi Fujimaki, former adviser to billionaire investor George Soros.

The BOJ said April 4 it will double monthly debt purchases to 7.5 trillion yen ($76 billion). That’s about 70 percent of planned bond issuance from the world’s most heavily indebted government. Governor Haruhiko Kuroda set a two-year horizon for achieving the 2 percent annual inflation target adopted in January at Prime Minister Shinzo Abe’s urging and said the monetary base will grow to 270 trillion yen by the end of 2014.

“By expanding the monetary base to 270 trillion yen, the BOJ is making a huge bet which I think it will ultimately lose,” Fujimaki said in an interview in Tokyo on Thursday. “Kuroda’s QE announcement is declaring double suicide with the government. The BOJ will have to share the country’s fate and default together.”

The BOJ governor said last week he won’t set a time limit for easing and he had taken all necessary measures for now to achieve the inflation target. Kuroda’s actions drove the yen to a four-year low of 99.95 yen and spurred volatility in government bond markets. The yield on the 10-year note climbed to 0.62 percent at the end of last week after dropping as much as 14 basis points on April 5 to a record-low 0.315 percent.

Bond Volatility

“The volatility in the JGB market as well as the fact that there is large selling represent fear among investors,” Fujimaki said. “They are early signs of a larger selloff and we should continue to monitor the moves in the long-term bonds.”

The BOJ will respond flexibly to rising price swings, central bank officials told reporters on April 11 after a meeting with market participants that marked another Kuroda innovation. It will consider announcing operation schedules in advance, they said.

Fujimaki said he recently bought put options for Japanese government bonds of various maturities, without elaborating. He continues to hold real estate in Japan and options granting the right to sell the yen against the greenback expiring in less than five years. He also holds assets in U.S. dollars and currencies of other developed nations.

“Japan’s finance is sinking into the ocean,” Fujimaki said. “There’s no escape from a market crash in the future when you have such enormous debt.”

Record Debt

Japan’s outstanding government bonds, bills and borrowings increased to a record 997.2 trillion yen at the end of 2012, according to Finance Ministry data. The International Monetary Fund estimates liabilities will grow to 245 percent of the nation’s economic output this year, expanding for a sixth-straight year.

Five-year credit-default swaps that insure Japan’s debt from nonpayment were at 70 basis points on Friday, up from a more than two-year low of 57 on March 11, according to CME Group Inc.’s CMA. The contracts are used by traders to speculate on the debt’s outlook, with an increase in price signaling worsening perceptions of creditworthiness, while an advance suggests the opposite.

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The Bank of Japan's "huge bet" by boosting quantitative easing won't turn the economy around and is instead sending the nation toward default, said Takeshi Fujimaki, former adviser to billionaire investor George Soros.
Sunday, 14 April 2013 07:32 PM
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