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Bank of Japan Policy Is Huge, Risky Experiment: Fund Manager

Thursday, 4 Apr 2013 | 1:25 PM ET
Kyle Bass: Japan About to 'Implode' Under Debt
Thursday, 4 Apr 2013 | 11:40 AM ET
CNBC's David Faber talks with Kyle Bass on Japan's aggressive monetary plan and the likely outcome from its attempt to devalue its currency.

Japan is wagering its future on a massive experiment by essentially doubling its monetary base, and Kyle Bass of Hayman Capital Management doesn't see it ending well.

The Bank of Japan's announcement Thursday of it's aggressive monetary policy—with roughly 140 trillion yen, or $1.46 trillion, on the line by the end of 2014—is meant to send a signal, Bass told CNBC's Squawk on the Street. "What [Prime Minister Shinzo] Abe and [new BOJ Gov. Haruhiko] Kuroda have done is formalized the announcement that the new sheriff is in town."

(Read More: Bank of Japan Unveils Aggressive Monetary Policy)

Bass is not reassured. "I think it's really important to appreciate the magnitude of the path they're embarking on," he said. "The Bank of Japan is buying assets at roughly 75 percent of the rate of the U.S. Fed, on an economy that's one-third the size of the U.S."

"What they're trying to do is materially devalue the currency, in order to become slightly more trade competitive, while attempting to hold their rates marketplace flat," Bass said. "The economists and central bankers believe they can live in that nirvana, and I believe that's not the case. I believe they will lose control of rates."

(Read More: Central Bank Efforts May 'End in Tears': Pimco CEO El-Erian)

Bass said Japan's not the only one.

"There are economic zealots running many of the central banks, (for whom) if some isn't working more is better—because they only know one thing. ... Central Banks around the world are creating Potemkin villages that are very difficult to invest around."

Investors should be wary, he said. "It's really important not to be long yen or Japanese assets."

(Read More: Poll: Can BOJ Achieve Its 2% Inflation Target?)

"If you're Japanese, you need to go spend all of the yen that you have, or take it out of your country and put it somewhere you're not going to suffer a massive depreciation in your purchasing power," Bass said. "And non-Japanese investors should borrow in yen and go buy productive assets in other countries that aren't as fiscally stretched."

The fiscal measures, he forecasts, are bound to disappoint. "When you have a declining population and a hollowed-out industry, you may get a bump in nominal GDP (from the monetary actions), but it's not the panacea everyone hopes it will be," he said.