Billionaire George Soros warns that the plan presented by the Bank of Japan to stimulate the economy and address the risk of deflation could lead to a steep depreciation of the yen, and its new lows against the dollar could turn into an avalanche.
“What Japan is doing is actually quite dangerous because they are doing it after 25 years of just simply accumulating deficits and not getting the economy going,” said Soros for CNBC.
“So if what they are doing gets something started, they may not be able to stop it. If the yen starts to fall, which it has done, and people in Japan realize that it is liable to continue, and want to put their money abroad, then the fall may become like an avalanche,” added Soros.
Bill Gross, who manages the largest bond fund in the world at Allianz, has also criticized the Bank of Japan (BoJ), saying that the yen will have to depreciate “much more” to reach the 2% inflation targeted by BoJ’s governor, Haruhiko Kuroda.
Kuroda presented yesterday a new program which doubles the fund allocated monthly by the BoJ for the purchase of bonds on the market to about 7.5 trillion yen ($77.8 billion) in order to bring the annual inflation within 2% in 2 years.
The yen depreciated by 18% in the last six months amid market speculation that the central bank could make a fresh injection of money into the economy.
Friday the yen was at 96.32 against the dollar, after the Japanese currency yesterday reached 97.19 yen per U.S. dollar, lowest level since august 2009.
Kuroda said Thursday that the Bank of Japan is ready to intervene more aggressively if necessary.
“If what they’re doing gets something started, they may not be able to stop it,” said Soros.
Soros Fund Management made almost $1 billion in November betting on a lower yen, said in February for Bloomberg a source close to the situation.
In 1992, Soros earned $1 billion after a $10 billion bet that the Bank of England will be forced to devalue the pound sterling.
Bill Gross believes that other developed countries will put pressure on Japan to slow the rate of decline of the yen, which increases the competitiveness of Japanese exports.
Gross is the manager of the Total Return Fund with assets of $289 billion in the Pacific Investment Management Co. (PIMCO), owned by German insurance group Allianz.
Reply