As the market begins the process of second guessing the G7’s coordinated action to keep the yen lower, High Frequency Economics is warning investors the damage caused by the disaster in Japan is being both understated by the government and underappreciated outside of people in the immediate vicinity.
“We think the G7 ministers have to contemplate the implications of failures in Japan’s banking and financial system as a result of the triple disaster of earthquake, tsunami and nuclear accident,” Carl Weinberg, chief economist at High Frequency Economics, said in a note to investors overnight.
Weinberg questions whether people impacted by the disaster will be remembering to pay their mortgages, business lines or credit cards.
“We could see banks having to write down parts of their loan portfolio very soon,” he said.
And it's also questionable whether G7 action on pushing down the yen will work, he said, adding that a persistently stronger yen is an “inevitable consequence of this catastrophe until the capital inflows stop, at which point it will crash.”
“We expect a major debasement of the value of JGBs over the next year, starting the day the BoJ can terminate its extensive money market support operations,” he said.
“We envision an even bigger ultimate decline in the Nikkei , perhaps doubling recent losses”.