Manager anticipates intense money printing as Japanese government launches quantitative easing measures
Barings’ Colin Harte has increased his short position on the yen in anticipation of the Japanese government launching an aggressive quantitative easing programme.
Harte, who manages the £176.2m Absolute Return Global Bond Trust and £167m Global Bond Trust, has a 35% short position in the yen over fears Japan will begin an intense period of printing money.
He believes the yen will become one of the worst-performing currencies following the start of the QE programme, which he predicts will begin in late March.
“People get alarmed by the build-up of debt in the UK, but the debt in Japan is twice the national income,” Harte says.
“They have a very large debt with a huge Government deficit. To reverse it, they need a huge primary surplus of around 15% GDP. They are currently running a primary deficit of about 9% or 10% GDP, which shows the amount of fiscal squeezing they have to do.
“Historically, if you look at countries which get in this situation, the option they tend to go for is some form of moneti-sation.
“You can cite Weimar, Zimbabwe or Argentina and this is the danger with Japan – the possibility they go straight to the printing presses.”
Harte had been gradually increasing his short position on the yen since a high of 50% long in early 2008, but in the past two months has moved from 15% short to 35% and with 12.5% long in sterling and Norwegian kroner.
Harte says he would expect to hold a longer position in sterling, but concerns over a hung parliament have kept him back by almost 8%.
“We are long sterling short yen, but it is not as big as it could be because we are a bit concerned about a hung parliament,” Harte adds.
“Given the valuation of sterling, we would normally have a 20% position against the yen, but at the moment we have kept that back at 12.5%.”
