Marc Faber, Editor and Publisher of the Gloom, Boom & Doom Report, is one of the world’s most famous market contrarians. He’s been pretty good about predicting bubbles and collapses over the past couple of decades. In this, the first of a three-part interview, Faber discusses how the Bank of Japan’s money-printing is one of the main drivers of the Japanese bull market.
While the US markets up are up this year, Japan's benchmark Nikkei index has hit five-year highs. According to Marc Faber, editor and publisher of the Gloom, Boom & Doom Report, that ride up has been on the back of the Bank of Japan's printing presses churning out more yen into the economy. Faber notes that while the Nikkei is up 72% in Japanese yen terms over the last six months, it's up only 34% in US dollar terms.
Back in October, the Nikkei was around 8,700 Japanese yen while the dollar was at 79 Japanese yen. Last week, the Nikkei traded above 15,000 but you now need over 102 yen to buy a dollar.
What drove up the Nikkei and made the yen weaker at the same time? As Faber points out, it was that the Bank of Japan has been flooding the Japanese economy with a lot yen in an effort to stimulate activity. All those yen had to go somewhere and that somewhere was the Japanese stock market.
What does Faber think is in store for Japan?
“The government in Japan will continue to monetize. In other words, they’ll continue to print money…. The yen is oversold and stocks are overbought and the correction is forthcoming. But, any time the market would drop in Japan and the yen would strengthen, there will be more money-printing.”
Will the Nikkei ever reach its 1989 highs near 39,000?
“The only way I could see 40,000 or even 100,000 on the Nikkei is really massive money printing,” says Faber. “As a result of massive money printing, the yen goes down and the bond market in Japan collapses. This would force the Bank of Japan to monetize even more because as interest rates go up on the Japanese debt, it becomes a burden on the Japanese government to pay the interest on the debt. So, it would have to be met by more money printing and that would lead to more yen weakness.”
They don't call him Dr. Doom for nothing.