Billionaire investor George Soros and Bill Gross, who runs the world’s biggest bond fund, said the Bank of Japan’s plan to end deflation risks is the weakening the yen.
“If the yen starts to fall, which it has done, and people in Japan realize that it’s liable to continue and want to put their money abroad, then the fall may become like an avalanche,” Soros said yesterday in an interview on CNBC.
The currency will have to depreciate “much more” for Bank of Japan Governor Haruhiko Kuroda to reach his inflation target of 2 percent, Gross said on Thursday.
Soros and Gross chimed in after Kuroda announced plans on Thursday to double the central bank’s monthly bond purchases to about ￥7.5 trillion (US$77.8 billion) as it seeks to achieve 2 percent annual inflation in two years. Japan’s currency has fallen 18 percent in the past six months on speculation policymakers were planning to pump more money into the economy.
Only the Venezuelan and Malawian currencies performed worse, according to data compiled by Bloomberg.
“If what they’re doing gets something started, they may not be able to stop it,” Soros said.
Soros Fund Management LLC, the billionaire’s US$24 billion family office, made almost US$1 billion since November last year on bets that the yen would tumble, a person close to the New York-based company told Bloomberg in mid-February.
In 1992, Soros and his then-chief strategist Stan Druckenmiller made a US$10 billion wager the Bank of England would be forced to devalue the pound, a trade that netted US$1 billion.
Kuroda may have difficulty achieving his inflation goal, Gross said.
G7 nations may press Japan to control the pace of the yen’s decline to temper gains in their own currencies, he said.
A stronger currency makes a nation’s goods more expensive to overseas buyers.
“It seems not unachievable, but it’s certainly a high target to reach,” Gross said yesterday on Bloomberg Television’s Street Smart. “They’ve got to depreciate the yen. To our way of thinking, much more depreciation of the yen has to take place in order to get even close to 2 percent [inflation],” he said.
“I’m not sure that other G7 countries are willing to permit that,” said Gross, who is based in Newport Beach, California. “They’ve got to control it to some extent.”