$/¥ at 400? Takeshi Fujimaki seems to thinks so.

Fujimaki 1

This is not new news, but it is worth revisiting after the IMF gave its implicit blessing to continued devaluation of the Yen – something we have commented on here: https://nipponmarketblog.wordpress.com/2013/04/20/conspicuous-by-its-absence/

Takeshi Fujimaki, George Soros’ former advisor on all matters Japanese, told Bloomberg that 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.

“By expanding the monetary base to 270 trillion yen, the BOJ is making a huge bet which I think it will ultimately lose. 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 volatility in the JGB market as well as the fact that there is large selling represent fear among investors. They are early signs of a larger selloff and we should continue to monitor the moves in the long-term bonds.”

The following chart shows implied volatility on 10 year JGBs. We should note that the market has calmed down after this spike in volatility immediately following the announcement about unprecedented levels of monetary easing, but it gives us an indication of the potential fragility of this market once doubt begins to creep in.

JGB vol 1

At any rate, Fujimaki went on to say that:

“Japan’s finances are sinking into the ocean. There’s no escape from a market crash in the future when you have such enormous debt. QE doesn’t work and has no exit. Things may look rosy for now as stocks rise, but should we see hyper-inflation, JGBs will see a huge selloff, leading to a stock market crash.”

Dramatic words, but as we have argued before here at NipponMarketBlog, the scenario laid out by Fujimaki is more a case of ‘when’ than ‘if’. Perhaps even more noteworthy is the assertion that the Yen could weaken to 400 against the USD. This is arguably a quite enormous devaluation, but in the event of a collapse of public finances and a default on government debt, one probably should not rule anything out.

The interview with Fujimaki is included in this clip from Bloomberg TV.



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