Soros Joins Pimco's Gross in Warning Japan's Stimulus Plan Undermines Yen

Friday, 05 Apr 2013 06:42 AM

 

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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 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 in an interview on CNBC.

The currency will have to depreciate “much more” for BOJ Governor Haruhiko Kuroda to reach his inflation target of 2 percent, Gross said.

Declassified: ‘Financial War’ Could Wipe Out 50% of Your Wealth’

Soros and Gross chimed in after Kuroda announced plans to double the BOJ’s monthly bond purchases to about 7.5 trillion yen ($77.8 billion) as it seeks to achieve 2 percent annual inflation in 2 years. Japan’s currency fell 18 percent in the past six months on speculation policy makers were planning to pump more money into the economy.

Only the Malawian and Venezuelan currencies performed worse, according to data compiled by Bloomberg.

The yen was little changed against the dollar today at 96.32 as of 8:51 a.m. in London. It earlier weakened to 97.19, a level not seen since August 2009.

The BOJ is ready to do more if needed, Kuroda told reporters in Tokyo.

Unstoppable Momentum?

“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 $24 billion family office, made almost $1 billion since November from 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 $10 billion wager the Bank of England would be forced to devalue the pound, a trade that netted $1 billion.

Kuroda may have difficulty achieving his inflation goal, Gross said. Group of Seven 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” with Adam Johnson and Sara Eisen. “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 G-7 countries are willing to permit that,” said Gross, who is based in Newport Beach, California. “They’ve got to control it to some extent.”

Gross manages the $289 billion Total Return Fund. Pimco is a unit Munich-based insurer Allianz SE.

Declassified: ‘Financial War’ Could Wipe Out 50% of Your Wealth’

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