The Yen Will Become Worthless: Fund Manager
The Japanese yen eventually will become "worthless" now that the Bank of Japan has launched an aggressive bond-buying program with no end in sight, said Axel Merk, president and CIO of Merk Mutual Funds, who set his price target for the currency at "infinity."
"The dynamics for the yen have changed. Over the last couple of years, the correlation between the yen and the (CBOE Volatility Index) has deteriorated, which means the yen is no longer the safe haven it used to be," he said. "The yen's current account is eroding, which means all this deficit is suddenly going to matter."
The safe-haven status of the Japanese yen is at risk after the currency hit fresh multi-year lows against the euro and the dollar on Monday.
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Merk said that the Japanese position is bad and is only getting worse, with a debt-to-gross domestic product ratio over 200 percent, a current account deficit and loose monetary policy, policymakers in the country are out of touch with the consequences of their actions.
The yen has fallen almost 14 percent year-to-date against the dollar, and on Monday hit its lowest level since June 2009 at 98.85 as the BOJ makes a massive shift in its monetary policy to achieve an inflation target of 2 percent over the next couple of years.
"They are pursuing Depression Era fiscal policies, they are printing money like crazy. That cannot end well," he said. "This is a determined Bank of Japan, they think the printing press is the solution to all of the problems and they will use it. It is slowly sinking in and the market is finally waking up to that."
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Merk said commodities such as gold aren't reflecting a more global inflation scenario because of a market belief that the problem is isolated to Japan, but these problems are likely to become increasingly worrisome for the Bank of England, the Bank of Canada, and eventually the U.S. Federal Reserve, he said.
"We do not have an exit," he said. "We have a global crisis and it's going to focus on Japan and the U.K., and eventually the U.S. as well."