Kyle Bass Tells Beacon Reports its ‘Checkmate’ for Japan
J. Kyle Bass thinks the government of Japan has mismanaged its finances to breaking point. He says the country will be the first developed nation to experience financial meltdown. In an exclusive interview with Beacon Reports, Kyle explains why Japan has moved into a position of ‘checkmate’.
Kyle Bass is Managing Partner at Hayman Capital Management, LP. He is credited with having correctly predicted the subprime mortgage crash of 2007, and in doing so earning $500 million for his firm. The Financial Times recently reported that Kyle’s $1.5bn hedge fund has averaged after-fee returns of 25% a year since 2006.
Beacon Reports: Kyle, what’s your latest thinking?
Kyle: I believe that 20 years of pro-cyclicality has manifested itself in a low volatility Japanese Government Bond (JGB) environment. In human psychology, beliefs become axiomatic through repetition. Investors are now conditioned to move their assets to the safety of JGBs when things go wrong. That’s now changing because of the size of Abe’s and Kuroda’s aggressive monetary easing plan.
That plan, one of the three arrows in Abe’s growth strategy (called ‘Abenomics’), has the BOJ buying just over ¥60 trillion of new bonds each year for the next two years. It effectively doubles Japan’s monetary base. Considering the likely fiscal deficit for this year and next is running about ¥50 trillion each year, or close to 11% of GDP, I think the BOJ can only buy another 10 or ¥12 trillion of JGBs. I don’t think that cushion is going to be enough to monetize the entire fiscal deficit if they are going to be the buyer of last resort.