June 19, 2013

Kyle Bass: Japan Stimulus Still Not Enough

According to Kyle Bass of Hayman Capital, the Japanese stimulus and money printing should be even larger to achieve the wanted results at keeping low the interest rates while bringing down the value of the yen and up the stock market.

"If Bank of Japan investors believe in Abenomics and (BOJ Gov. Haruhiko) Kuroda's plan to double the monetary base in the next couple years and generate some inflation and growth, then a rational investor who holds their bonds is likely to sell a portion if not all of them," Bass said.

During a visit in Japana, Kyle Bass saw it with his eyes that many investors believe that BOJ will be able to temporary generate some growth and wealth. This means that rational investors will sell bonds as inflation expectations will go up. There is quadrillion yen in bonds. If 5% are sold, that’s 50 trillion yen.

That’s why according to Kyle, the plan of BOJ is not big enough. According to the BOJ plan announced April 4, the central bank will buy 60 trillion yen ($630 billion) in bonds both this year and next. The market reaction is clear according to him. The biggest banks started selling bonds and started buying Japanese equities and foreign bonds. What’s still unclear is when BOJ will increase its asset purchase program and by how much.

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.