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Ex-Soros Advisor Sells “Almost All” Japan Holdings, Shorts Bonds; Sees Market Crash, Default And Hyperinflation

From zerohedge here

Previously, we have pointed out why Japan’s attempt at reincarnating its economy, geared solely at generating a stock market-based “wealth effect”, and far less focused on boosting the country’s trade surplus or current account, is doomed to failure, namely due the drastically lower equity participation by the general population and financial institutions in the country’s stock market. Sure, foreign investors will come and go renting each rally for a period of time, but unless the local population participates in the “reflation attempt” (which has already sent the price of luxury goods, energy and food through the rood), or in other words change the behavioral patterns of two generations of Japanese in under two years, the inflationary shock will simply leads to a loss of faith in the government and ultimately Abe’s second untimely demise. Not surprisingly, 4 months after Japan set off on the most ludicrous economic experiment in history, and one week after the BOJ announced its plans to double its balance sheet, Abe’s approval rating has already begun sliding with a poll by Asahi just reporting that popular support of Abe’s cabinet is already down to 60%, down from 71% a month ago.

The reflationary reality has finally started to get official recognition with the very Goldman Sachs (who like in Europe and the US is behind this epic experiment in hidden taxation of consumers) asking how popular inflation would be in Japan, and answers:

How popular will inflation be in Japan? Assuming the BoJ is successful and inflation rates rise, one interesting dynamic will be the political support for ‘super-easy’ monetary policy. The majority of financial household assets sit in deposits, which until now have earned a positive real rate. While long-term inflation expectations move higher, the Yen and equities re-price rapidly but the negative impact on deposit returns from negative real rates will only be felt once inflation has actually started to materialise. This is clearly not an immediate concern as the government’s approval ratings remain high ahead of the Upper House elections this Summer. Still, PM Abe’s policy aim of beating deflation may become less popular at some stage because the implied distributional choices of higher inflation may become clearer for voters. For example, higher inflation would re-distribute real income from (older) savers to (younger) wage earners. But again it is worth thinking about the exact sequencing. By the time inflation in Japan becomes settled in positive territory the Fed may well be on the verge of hiking rates. In essence, any concerns about inflation in Japan and debate about a BoJ policy response will likely arrive at a stage when Fed tightening and JPY carry trades have already become the dominant theme.

In short, yes, Japanese inflation will destabilize the economy, and almost certainly lead to yet another political upheaval, but by then Japan will have served its purpose and injected some $1 trillion into the US stock market, thus supposedly allowing the US economy to become self sustaining. Or not. As to the consequences that the demographically-challenged Japanese population has to face as it suddenly finds itself holding worthless pieces of paper… who cares.

Which means that Abenomics will ultimately fail to fix Japan, but at least there is some hope it will last long enough to send the S&P to even more ridiculous highs – which, when one cuts out all the noise, it really what the whole experiment is all about.

For Japan, there is still some hope that the country will stop this ludicrous experiment merely serving to feed US risk assets before it is too late. Luckly, we are not the only ones seeing the writing on the wall. A month ago, it was “Mr. Yen”, former finmin Eisuke Sakakibara, himself, saying “Abenomics” is going to fail.

“In terms of two percent inflation, it [‘Abenomics’] will fail. Deflation is structural. Even at the time, when Japan was in the upward [growth] swing between 2002 and 2007, prices went down. It will be extremely difficult to get out of deflation,” said Sakakibara, also known as “Mr. Yen” for his efforts to influence the currency’s exchange rate through verbal and official intervention in the forex markets in the late 1990s.

According to Sakakibara structural deflation in the world’s third largest economy is largely a result of the integration between the Japanese and Chinese economies and hence near impossible to move away from.

“Cheap Chinese goods come into Japan and push down the prices. And a lot of Japanese companies go to China to manufacture goods — so it’s not going to change,” said Sakakibara, who is currently a professor at Aoyama-Gakuin University in Tokyo.

According to Sakakibara, dollar-yen between 90 and 95 would be most favorable for the economy.

“I remember in 1998, 1999 — it [dollar-yen] did go to 150 — I was at that time in the government, I was terrified,” he said.

Moments ago, it was none other than Takeshi Fujimaki, Soros’ former advisor on all matters Japanese, who tripled down on the warnings, and told Bloomberg that the Bank of Japan’s “huge bet” by boosting quantitative easing won’t turn the economy around and is instead sending the nation toward default.

“By expanding the monetary base to 270 trillion yen, the BOJ is making a huge bet which I think it will ultimately lose,” Fujimaki said in an interview in Tokyo on April 11. “Kuroda’s QE announcement is declaring double suicide with the government. The BOJ will have to share the country’s fate and default together.”

Why? Same reason we have been pointing out every day for the past week, the same reason the Japanese bond market is now essentially broken with daily trading halts becoming an expected feature:

“The volatility in the JGB market as well as the fact that there is large selling represent fear among investors,” Fujimaki said. “They are early signs of a larger selloff and we should continue to monitor the moves in the long-term bonds.”

Fujimaki said he recently bought put options for Japanese government bonds of various maturities, without elaborating. He continues to hold real estate in Japan and options granting the right to sell the yen against the greenback expiring in less than five years. He also holds assets in U.S. dollars and currencies of other developed nations.

“Japan’s finance is sinking into the ocean,” Fujimaki said. “There’s no escape from a market crash in the future when you have such enormous debt.”

And the punchline:

“By expanding the monetary base to 270 trillion yen, the BOJ is making a huge bet which I think it will ultimately lose,” Fujimaki said in an interview in Tokyo on April 11. “Kuroda’s QE announcement is declaring double suicide with the government. The BOJ will have to share the country’s fate and default together.”

“Shirakawa did more than enough and he had good reasons to not do any more,” said Fujimaki. “There will be tremendous side effects from monetary stimulus. QE doesn’t work and has no exit.”

“Things may look rosy for now as stocks rise, but should we see hyper-inflation, JGBs will see a huge selloff, leading to a stock market crash,” said Fujimaki, adding that he sold “almost all” of his Japanese stock holdings some time ago.

Wow.

And people thought Kyle Bass was bearish.

Great Post on zero hedge here from Brandon Smith from ALT Market

One of the most frustrating issues to haunt the halls of alternative economic analysis is the threat of misrepresentative terminology. For instance, when the U.S. government decided to back the private Federal Reserve in lowering the interest rates on lending windows to European banks last month, they did not call this a bailout, even though that’s exactly what it was. They did not call it quantitative easing, or fiat printing, or a hyperinflationary landmine; rarely does bureaucracy ever apply honest terminology to their subversive activities. False terminology is the bane of every honest analyst, because in order for them to educate and awaken those who are unaware of the truth, they must first battle through the daunting muck of the general public’s horrifically improper perceptions and vocabulary.

The chain of financial events taking place over the past decade in Asia have been correspondingly mislabeled and misunderstood. What some economists see as total collapse is actually a new and decidedly prophetic (or engineered) transition. What some naively see as the “natural” progression of globalism, is actually a distinctly deliberate program of centralization meant to further the goals of world economic and political totalitarianism. Asia, and most especially China, is a Petri dish for elitist psychopaths. What we see as suffocating collectivism in this region of the world today is the exact social schematic intended for the West tomorrow. Call it whatever you will, but on the other side of the Pacific, like the eerie smile of a sinister clown, sits fabricated fate.

The genius of globalization is not in how it “works”, but in how it DOESN’T work. Globalization chains mismatched cultures together through circumstance and throws us into the deep end of the pool. If one sinks, we all sink, enslaving us with interdependency. The question one must ask, then, is if all sovereign economies are currently tied together in the same way? The answer is no, not anymore. Certain countries have moved to insulate themselves from the domino effect of debt implosion, one of the primary examples being China.

Since at least 2005, China has been taking the exact steps required to counter the brunt of a global debt collapse; not enough to make it untouchable, but enough that its infrastructure will survive. One could even surmise that China’s actions indicate a foreknowledge of the events that would eventually escalate in 2008. How they knew is hard to say, but if the available evidence causes you to lean towards collapse as a Hegelian creation (and it should if you are paying any attention), then China’s activity begins to make perfect sense. If a globalist insider told you that in a few short years the two most powerful financial empires in the world were going to topple like bowling pins under the weight of their own liabilities, what would you do? Probably separate yourself as much as possible from the diseased dynamic and construct your own replacement system. This is what China has done…

China started with the circulation of Yuan denominated bonds, like T-Bonds, meant to securitize Chinese debt, creating an outlet for the currency to go global. China’s considerable forex and bond reserves make this move a rather suspicious one. With so much savings at their disposal, why bother to issue bonds at all? Why threaten the traditional export based economy and the uneven trade advantage that the country had been thriving on for decades? The success of Chinese bonds would mean the internationalization of the Yuan, a floating valuation of the currency, and the loss of the desirable trade deficit with the U.S. Back in 2005, this all would surely seem like a novelty that was going nowhere fast. Of course, today China’s actions suggest an unprecedented push to convert to a consumer hub at the center of a massive trading bloc. To put it simply; China knew ahead of schedule that the U.S. was no longer going to be a viable customer, and reliance on such a country would spell disaster. They have been preparing to break away from America’s consumer markets and the dollar for some time.

In 2008, after China announced the use of the Yuan in cross border trade on a limited basis, I began to write about the possibility that China was preparing to break from the Greenback. For the past few years my primary focus in terms of finance has been the East as a kind of warning bell for the state of the global economy. In 2009 and 2010, it became absolutely clear that China (with the help of global corporate entities) was developing the skeleton of a new system; a trade network that that had the capacity to supplant the U.S. and end the dollar’s world reserve status.

Since then, Yuan bonds have spread across the planet, China has dropped the dollar in bilateral trade with Russia, the ASEAN trading bloc has formed into a tight shell of export partners, and that is just the beginning. Two major announcements in 2011 have solidified my belief that a complete dump of the dollar by eastern interests is near…

First was the announcement that China was actively and openly pursuing the establishment of a central bank for the whole of ASEAN, with the Yuan utilized as the reserve currency instead of the dollar:

http://www.reuters.com/article/2011/10/27/us-china-asean-financial-idUST…

This news, of course, has barely been reported on in the mainstream. As I discussed at the beginning of this article, the terminology surrounding economic developments has been diluted and twisted. When China states that an ASEAN central bank is in the works, we need to point out what this really means; the ASEAN trading bloc is about to become the Asian Union. The only missing piece of the puzzle is something that I have been warning about for at least a couple years, ever since my days at Neithercorp (see “Migration Of The Black Swans” as a recent example). This key catalyst is the inclusion of Japan in ASEAN, something which many said would take five to ten years to unfold. News released this Christmas speaks otherwise:

http://www.bloomberg.com/news/2011-12-25/china-japan-to-promote-direct-trading-of-currencies-to-cut-company-costs.html

Japan has indeed entered into an agreement to drop the dollar in currency exchange with China and has expressed interest in melting into ASEAN. Japan has also struck somewhat similar though slightly more limited deals with India, South Korea, Indonesia, and the Philippines almost simultaneously:

http://www.bloomberg.com/news/2011-12-28/japan-india-seal-15-billion-currency-swap-arrangement-to-shore-up-rupee.html

This means that the two largest foreign holders of U.S. debt and Greenbacks will soon be in a position to tap into an export market far more profitable than that of America, and that all of this trade will be facilitated by currencies OTHER THAN THE DOLLAR. It means the end of the dollar as the world reserve and probably the end of the dollar as we know it.

Japan’s inclusion in this process was inevitable. With its economy already in steep deflationary decline, the Yen skyrocketing in value against the dollar making exports difficult, as well as the ongoing nuclear meltdown problem at Fukushima, the island nation has been on the edge of complete collapse. Its only option, therefore, is to sink into the chaotic sees, or float like a buoy tied to an Asian Union. There can be absolutely no doubt now that Japan will soon implement the latter solution.

The dilemma at this point becomes one of timing. Now that we are certain that two of the largest economies in the world are about the dump the Greenback, what signals can we watch when preparing for the event? My belief is that the trigger will come squarely from the U.S. and the Federal Reserve, either as legislation to heavily tax Asian imports, a renewed threat of further credit downgrades like that which S&P brought down in August, or the announcement of more open quantitative easing. Any and all of these issues could very well arise in the course of the next 6-12 months, QE3 being a basic no-brainer. ASEAN could, certainly, drop the dollar immediately after their central bank apparatus is put in place, resulting in a much more volatile trade war atmosphere (also useful for full global centralization later down the road). The point is, we are truly at a place in our economic life when ANYTHING is possible.

My hope is that as our predictions in the alternative economic community are proven correct with every passing quarter, more Americans will take note, and prepare. I can say quite confidently that we have entered the first stages of the catastrophic phase of the economic implosion. All the fantastic and terrible consequences many once considered theory or science fiction, are about to become reality. Practical solutions have been offered by myself and many others. The only thing left now is to take action, or ride the tidal wave of destruction like so much driftwood. We can help to determine the outcome, or we can be idle spectators. In everything, there is a choice…

Target 73.31