Japan is about to "detonate" a "debt bomb" and will be forced to massively devalue its currency, Kyle Bass says.
During an interview with University of Virginia business school professor: Ken Eades, Kyle Bass argues that Japan is already in a crisis, and that the possible election of Shinzo Abe next month will set off a chain of events that will result in a devaluation of the Yen and treasury yields skyrocketing. "In the next 12 to 18 months, I think you're going to see a move in their rates. Basically Japan is entering its final 'checkmate' phase of the chess game."
Japan is already running a -$100 billion trade balance, Bass says, and the country's GDP has been hit by Chinese boycott stemming from the Diayou/Senkuku islands dispute.
"You have a secular decline in the population happening, you have a balance of trade that's literally being rewritten and falling off a cliff and their GDP is now tracking -3.5, -4 percent.
"We think Abe's a shoo-in. And he said he's going to do everything possible to get to 3 percent inflation. He doesn't even know what he wishes for, because if he gets there, he detonates his debt bomb. "
"When there's a press release put on the BOJ's website from the MOF, the BOJ and the government — that's analogous to Bernanke, Geithner and Hillary Clinton issuing a joint press release saying 'we're going to end deflation'. This is how it begins to happen"
"Their backs are against the wall. They have a full crisis. They absolutely have to change the manner in which they deal with their currency."
Kyle Bass, an American hedge fund manager, is the Founder of Hayman Capital. He received extensive coverage in the financial press for profiting $590 million by short selling the sub-prime mortgage bond market, before that market crashed. In 2011, Bass initiated a huge position in Greek sovereign debt through CDSs. Media reports were that he could profit up to 650 times his investment should Greece default on its debt obligations.
