Japan's `Old Guy Who Cries Wolf' Sees Yen Slump on Inflation Hit

Takeshi Fujimaki

Takeshi Fujimaki, member of Japan's House of Representatives. Photographer: Junko Kimura/Bloomberg

  • Fujimaki sees yen sliding toward 180 to 200 per greenback
  • He recommends buying dollars before Japan faces hyperinflation

Takeshi Fujimaki, a Japanese banker turned opposition lawmaker, said the Bank of Japan will achieve its 2 percent inflation target much earlier than expected. And that’s what scares him.

The yen will slide toward a more “appropriate” level at 180 to 200 per dollar over the long term, from about 123 now, as the BOJ sticks to bond-buying stimulus and the Federal Reserve embarks on successive rate increases, Fujimaki said. While that will help the monetary authority reach its price goal before the fiscal half ending March 2017, it will add to the risks of “fiscal collapse,” he said.

“My biggest fear is what will happen to Japan when the 2 percent inflation target is achieved,” Fujimaki said in an interview in Tokyo on Nov. 9. “When the BOJ stops buying assets, their prices will crash and long-term yields will jump. There is no choice but to keep buying and inflation will run away because the BOJ can’t raise rates.”

Fujimaki, who has been predicting an eventual default in Japan over the past two decades and jokes that so far he has been an “old guy crying wolf,” joins other critics including former vice finance minister Eisuke Sakakibara, who have raised concerns about an escalation in the world’s heaviest debt burden. He is calling on individuals, companies and even the government to buy the dollar as the country heads toward hyperinflation.

The 65-year-old lawmaker, who was briefly at Soros Fund Management in 2000, last year predicted that the yen will drop to 140 per dollar in 2015 before sliding to 200 against the greenback once the BOJ can no longer “camouflage” the nation’s default risk. The median forecast in a Bloomberg survey puts the Japanese currency at 123 at the end of this year.

Fujimaki, who joined the Tokyo office of Morgan Guarantee Trust Co. in 1985 and won his upper house seat in July 2013, isn’t alone in warning that Japan faces a potential fiscal crisis. Borrowings will balloon to about 300 percent of gross domestic product in about six years, an unsustainable level, Sakakibara, now a professor at Aoyama Gakuin University, said in June. The ratio rose to 230 percent in 2014 from about 193 percent in 2010, making it the worst among the Group of Seven nations.

The yen fell to its lowest since August against the dollar on Nov. 9 days after a stronger-than-expected U.S. jobs data spurred speculation that the Fed will raise its benchmark rate in December. The yield premium for two-year Treasuries over similar maturity JGBs widened to 88 basis points, the most since April 2010, the day the employment report was released.

Yields Plunge

Japan’s yields have slid to unprecedented levels since BOJ Governor Haruhiko Kuroda first introduced quantitative and qualitative easing in April 2013, followed by an expansion of the stimulus in October last year. The yen has slumped more than 20 percent versus the dollar in the period. The benchmark 10-year JGB yield was at 0.3 percent on Wednesday, after reaching a record low of 0.195 percent in January.

Taro Saito, the director of economic research at NLI Research Institute in Tokyo, said it will be difficult for the BOJ to stably maintain prices at 2 percent by the latter part of fiscal 2016.

Not Sustainable

Kuroda last month pushed back the deadline to achieve stable 2 percent inflation to the six months through March 2017, blaming falling oil prices. Consumer prices excluding fresh food fell 0.1 percent in September from a year ago, after sinking below zero for the first time since April 2013 in the previous month.

“Depending on external factors such as the yen’s decline and a rise in oil prices, inflation may reach 2 percent briefly but that won’t be sustainable,” Saito said.

Japanese Prime Minister Shinzo Abe may order an extra budget, Economy Minister Akira Amari said this week, adding that the country needs measures to support the economy.

The BOJ’s asset purchases have made it the biggest single holder of JGBs, causing some dealers to complain that liquidity has fallen in the world’s second-largest bond market. The central bank owned a record 295 trillion yen ($2.4 trillion) of outstanding sovereign debt and bills at the end of June, holding 28.5 percent of the securities. 

“When inflation hits the 2 percent target, there is going to be a massive problem -- how will the BOJ justify QQE?” said Fujimaki. “Japan is becoming a broken car without any proper brakes.”

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