Société Générale strategist Albert Edwards is predicting a yen crash will force devaluations across Asia, which will have significant repercussions for the West.
In the perma-bear's view the market has not 'grasped the significance of this phase of currency wars'.
'It reminds me of the 2006/07 period when falling US house prices and then widening corporate bond spreads were totally ignored by upbeat equity investors until it was too late,' he reflected.
In his view, the yen is set to follow the US dollar DXY trade-weighted index 'by crashing through multi-decade resistance - around ¥120'. Once the dollar-yen exchange rate reaches this level, he expects a very quick ¥25 move to ¥145.
'I expect the key ¥120/$ support level to be broken soon and the lows of June 2007 (¥124) and February 2002 (¥135) to be rapidly taken out,' he noted.
This, he expects, will force devaluations across the whole Asian region and will send a tidal wave of deflation westwards.
'I simply think Japan will lose control of the situation given the quantity of quantitative (QE) being spewed into the markets and unless the US, the eurozone, or indeed Korea, is prepared to come remotely close to Japan's rate of QE, jawboning currency stability will do very little,' Edwards explained.
'But I do believe the yen devaluation will drag down other competing currencies in the Asian region,' he added - not least China.
He points to 32 successive months of deflation in China at the producer price level and poses the question: do investors think China can cope with a devaluation of the yen from here?
He answered: 'They simply can’t tolerate this and they won’t. They will devalue.'
He points out that strategists are rarely willing to make bold currency forecasts and therefore do not tend to predict too far from the current spot rate.
'It is mainly the fear of being wrong that prevents them from making bold forecasts, despite consistent evidence that markets are far more volatile than their mundane forecasts ever suggest,' he added.
While Japan is cheap and getting cheaper, he anticipates further dollar strength ahead too.
Edwards is not a strong believer in quantitative easing (QE) in terms of Bernanke's former approach of pushing up asset prices to inflate the real economy.
Yet he believes the only way that QE works is via the exchange rate and commends the Bank of Japan for genuinely doing whatever it takes. This contrasts starkly with the European Central Bank, he comments.
'The problem for the eurozone is that Draghi is getting increasingly long on promises and pretty disappointing on delivery. Japan is just on a different page, league, or indeed planet, altogether,' he added.
He anticipates the yen could fall to the July 08 low of ¥170 versus the euro.