Japan’s government has to follow through with plans for stimulus spending, monetary easing and a doubled inflation target to sustain a weakened yen, said Mohamed El-Erian, co-chief investment officer of bond giant Pacific Investment Management Co.
“It is critical to go from announcement to implementation to outcomes,” El-Erian said on Bloomberg Radio’s “Surveillance” with Tom Keene. “Structural reforms is what it’s going to take to sustain moves in the Japanese markets.”
Prime Minister Shinzo Abe needs to carry out stimulus spending while Japanese consumers will have to accept rising prices for goods such as oil as the yen depreciates, El-Erian said.
“Japan is attempting a major paradigm shift,” El-Erian said. “That is going to fuel talk about currency wars and trade tensions.”
The yen plunged 17.8 percent during the past 12 months against nine other developed-market peers tracked by Bloomberg Correlation-Weighted Indexes as Japanese officials have moved to double the inflation target to two percent.
The yen fell 0.1 percent to 89.96 at 9:49 a.m. in New York, and has weakened about 6.6 percent since Abe took office last month.
El-Erian, who recently returned from Japan after meeting with Pimco employees, said he won’t be traveling to Switzerland to attend the World Economic Forum’s annual meeting in Davos from Jan. 23-27.
“Davos tends to be reactive,” El-Erian said. “It’s less good of a predictor of what is likely to happen.”
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