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GLG's Harker: Japan could collapse on huge QE gamble
by Matthew Goodburn on Sep 25, 2013 at 13:10
Japan equities veteran manager Stephen Harker believes further quantitative easing in Japan is a 'huge gamble' that threatens to bring a 'steady and stable economy' crashing down.
Citywire + rated Harker, who runs the GLG Japan CoreAlpha fund alongside + rated pair Jeffrey Atherton and Neil Edwards, thinks the fiscal and monetary policies of Abenomics could ultimately lead to the government and central bank losing control of the currency and the bond market.
He told Citywire Global: 'They have gone for broke with the re-inflation route. The people now running this game describe it as regime change and are trying to recreate the 1980s, which was a bull market and a happy time for Japan.'
'Japan is a good, steady and wealthy state. For the first time [due to QE] we could see it go badly wrong.'
Harker also dismissed Prime Minister Abe's 'Three Arrows' policy as largely 'irrelevant nonsense' although he conceded that the third arrow - structural, tax and social reform - was 'the only arrow worth talking about'.
Clear out dead wood
Harker believes the most positive part of the third arrow policy will be that it will give the green light to corporate Japan to clear out excess or superfluous labour in a country where the prevailing culture is for many employees to effectively have a job for life.
'There is big pressure from the corporates to get rid of surplus labour. Companies such as NEC, Fujitsu, Hitachi are all desperate to shrink their labour force so that could be the most bullish aspect of the third arrow.'
As a strict contrarian value manager, Harker looks only for the most undervalued large cap stocks and says that Abenomics has relatively little impact on his stock picking.
While Toyota has benefited from a weaker yen, Harker says that the other three main car makers, and companies in the electronics sector have not benefited at all. Recent addition Canon is also yet to benefit from a prevailing cheaper yen.
Instead, he is concerned that the huge ongoing financial experiment could lead to the destabilising of the Japanese economy.
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