Gary Shilling Sees the Japanese Yen Weakening Substantially

By on March 27, 2012

Henry Blodgett interviewed Gary Shilling a few days ago to get his insight into the Japanese economy. Shilling, of A. Gary Shilling & Company, is the author of The Age of Deleveraging, Updated Edition: Investment Strategies for a Decade of Slow Growth and Deflation.

Blodgett began the interview stating that for the last decade or so, economists have been predicting problems for Japan as its huge borrowing costs causes it to implode, but it has yet to happen. Blodgett mentioned that the Japanese Yen has been weakening recently and asked Shilling if this indicated the end was near.

Shilling indicated he believed the end of Japan was near, or at least a rationalization of its problems was imminent. Japan has been able to finance its huge government debt and deficits internally. They were able to do this because the Japanese people were saving 20% of their income. Shilling said as the population ages they tend to save less.

Shilling said Japanese businesses began running surpluses, which allowed the government to finance its debt. They currently have a capital account surplus that shows the effects of these surpluses, but these influences are starting to fade.

Shilling referred to Japan as a slow motion train wreck, which was speeded up by the tsunami and earthquake. They now have to import energy and building materials so their trade deficit and current account deficit have been slipping. Japan’s trade deficit was actually negative in January, but went positive in February, however Shilling thinks the trend is down.

When the balance of trade shifts downward Japan is going to have to import capital, and they will have to pay up for it, according to Shilling.

Shilling said the Japanese 10-year government bond yields about 1%. If they have to start paying similar rates to those in the U. S. (2%) it will create a problem by the interest due building on itself and spiraling out of control.

The interview (available below) continued with Shilling further explaining why Japan will have to “pay up” for their debt, his comments on the Bank of Japan’s directive to reduce the value of the yen and promote moderate inflation, his expectation for Japanese interest rates, his view of the debt to GDP for Japan (110%) versus the U. S. (60%), and his intermediate term projection for the yen (which he is short).

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>