Japanese Prime Minister Shinzo Abe’s reliance on fiscal and monetary easing to defeat deflation may precipitate a “plunge” in the yen and sovereign bonds, said Noriko Hama, an economics professor at Doshisha University’s Business School in Kyoto.
“The Bank of Japan is no longer functioning as a proper central bank,” Hama said at a speech in Tokyo on Nov. 21, referring to the BOJ’s doubling of monthly bond purchases to more than 7 trillion yen ($68.8 billion) in April.
“The scariest scenario, and the one we should be most wary of, is a bottomless crash in the yen,” as the global financial community loses faith in the currency, Hama said.
The introduction of so-called Abenomics has spurred a 19 percent tumble in the yen against the dollar in the past 12 months, pushing the currency 101.81 yen today, the weakest since May 29.
Hama said it should trade at 50 yen and that the policies as are throwback to an era of export-driven economic growth underwritten by a weak yen.
“Once the dollar’s excessive valuation is corrected, the world will regain balance, with Japan as a pre-eminent exporter country,” said Hama, who previously served as chief economist at Mitsubishi Research Institute.
A plunge in the yen may also lead to a sell-off of the country’s sovereign bonds, as domestic investors would be forced to dispose of the notes, she said.
Japan’s benchmark 10-year yield was little changed at 0.63 percent as of 12:40 p.m. in Tokyo. It dropped to a record-low 0.315 percent on April 5, the day after the BOJ unveiled the unprecedented bond-buying program.
In April, BOJ Governor Haruhiko Kuroda announced a target of achieving 2 percent inflation in about two years.
He is speaking today ahead of an announcement this week by Japan’s statistics bureau that is expected to show the nation’s consumer prices excluding fresh food rose 0.9 percent last month from a year earlier, according to the median estimate of economists surveyed by Bloomberg News. That would be the strongest advance since 2008.
bloomberg.com
“The Bank of Japan is no longer functioning as a proper central bank,” Hama said at a speech in Tokyo on Nov. 21, referring to the BOJ’s doubling of monthly bond purchases to more than 7 trillion yen ($68.8 billion) in April.
“The scariest scenario, and the one we should be most wary of, is a bottomless crash in the yen,” as the global financial community loses faith in the currency, Hama said.
The introduction of so-called Abenomics has spurred a 19 percent tumble in the yen against the dollar in the past 12 months, pushing the currency 101.81 yen today, the weakest since May 29.
Hama said it should trade at 50 yen and that the policies as are throwback to an era of export-driven economic growth underwritten by a weak yen.
“Once the dollar’s excessive valuation is corrected, the world will regain balance, with Japan as a pre-eminent exporter country,” said Hama, who previously served as chief economist at Mitsubishi Research Institute.
A plunge in the yen may also lead to a sell-off of the country’s sovereign bonds, as domestic investors would be forced to dispose of the notes, she said.
Japan’s benchmark 10-year yield was little changed at 0.63 percent as of 12:40 p.m. in Tokyo. It dropped to a record-low 0.315 percent on April 5, the day after the BOJ unveiled the unprecedented bond-buying program.
In April, BOJ Governor Haruhiko Kuroda announced a target of achieving 2 percent inflation in about two years.
He is speaking today ahead of an announcement this week by Japan’s statistics bureau that is expected to show the nation’s consumer prices excluding fresh food rose 0.9 percent last month from a year earlier, according to the median estimate of economists surveyed by Bloomberg News. That would be the strongest advance since 2008.
bloomberg.com
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