by John Galt
June 14, 2012 22:30 ET
From Bloomberg tonight:
Investors should buy assets in U.S. dollars and other currencies of strong developed nations because Japan may default within five years, said Takeshi Fujimaki, former adviser to billionaire investor George Soros.
“Japan is likely to default before Europe does, which could be in the next five years,” the president of Fujimaki Japan, an investment advising company in Tokyo, said in an interview yesterday. Japanese should hold foreign-currency products, such as those denominated in the greenback, Swiss franc, sterling, Australian and Canadian dollars, Fujimaki said.
Should the Japanese government default, the yen may weaken to 400-500 per dollar, and the yields on benchmark 10-year bonds could surge above 80 percent, according to Fujimaki. “I’m buying dollars in case of an emergency,” he said.
In other words the former adviser is apparently validating a February 16th story from Fortune magazine by Cyrus Sanati which stated:
With the European sovereign debt imbroglio taking a breather for the moment, there is increasing concern on Wall Street that Japan could be the next major flashpoint in the ongoing global financial crisis. It appears that the country’s economic reckoning, some 20 years in the making, could finally be coming to a head in the near future as the economy weakens and its debt, relative to its economic output, balloons to a level that makes Greece look like a responsible steward of capital.
Wall Street is buying protection in the form of credit default swaps to prepare for that day Japan implodes. Trading of swaps on Japanese sovereigns has been highly volatile in the past year — they are currently being sold at around 135 basis points, 100 basis points above Japan’s debt yield, credit traders in New York and London tell Fortune. Credit default swaps provide a way for investors to make money in the event of a default.
From an American economic standpoint, a default by Japan would make the collapse of all of the PIIGS nations pale by comparison and create conditions we have never witnessed for the world financial system and have grave geopolitical implications for the United States and the free world.