Hugh Hendry: Hyperinflation Is Coming After A Major Crisis In... JAPAN

Hugh Hendry

The contrarian manager of Eclectica, Hugh Hendry, says hyperinflation is inevitable as many countries face insurmountable debt. And to get there, policy makers need a major deflationary event.

But what’s surprising in Hendry’s investors letter — since he’s been hating on China for weeks — is that he says this crisis could come out of Japan.

Hendry point to the decline of a Japanese credit rating agency as evidence that everyone is ignoring an unprecedented debt burden (via market folly):

Last December saw the closure of Japan’s only truly independent and rational (at least to me) credit rating agency [Mikuni]… The closure of course coincided with Japan’s first ISDA recognised credit default event, the restructuring of the consumer finance company Aiful, and preceded by a mere month the bankruptcy of JAL. It is as though the truth is so unpalatable that investors would rather not hear it, certainly not pay Mikuni $5,000 per quarter to confirm the near certainty that they own over-valued corporate credits. A country with a debt burden that is unprecedented in the modern age and whose companies typically pay less than 2% per annum for 10 year money has decided that it has no need for tales of possible woe. To quote Hillary Clinton, it’s, “Unf***ingbelievable!”

A Japanese deflationary event means a “sudden and dramatic appreciation in the yen that would bankrupt its domestic export base.”

Japan’s much-touted rebound from two lost decades has been disappointing. They’re also facing the World’s Worst Demographic Crisis >

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