Fed has lost control, more yen weakness ahead, says SocGen
More weak Japanese economic data this past week means the Bank of Japan may be closer to hitting the button for further quantitative easing, said SocGen’s strategy chief Albert Edwards.
Edwards said that has set in motion a chain of events which will end with US and Eurozone inflation expectations moving lower still, as the yen slides, setting off a second round of Asian emerging currency weakness.
Yet above all investors should take note of the rapid decline in US inflation expectations since the last FOMC meeting, he said.
Edwards pointed out that markets are saying the US Federal Reserve has lost control and it all feels again very much like Japan around 1995 when the country’s currency, the yen, surge.
So-called five-year US inflation break-evens have set new lows for the year, with the spread versus the Eurozone dropping to only 20 basis points against 60 basis points last October.
“Bond investors are signalling to us that they don’t believe the Fed is in control anymore,” Edwards said in a weekly strategy note entitled, In the race to the bottom you need to keep running - Steroids also help!
“You know my view. All this money printing will ultimately end in tears. Despite being a fully paid up member to the school of thought that believes that Japan has no option other than to monetise its public sector deficit because the government is insolvent, that is also the same reason why I remain bullish on the Nikkei.”