Gross says yen to weaken to 100 per dollar on QE concern

Pacific Investment Management Co.’s Bill Gross, manager of the world’s biggest bond fund, said the yen is likely to weaken to 100 per U.S. dollar on concern stimulus measures by the Bank of Japan will debase the currency.

“We’re going to see a lot of printing of yen,” Gross said during an interview on Bloomberg Television’s “Market Makers” with Erik Schatzker and Stephanie Ruhle. “You want to avoid the currency that prints the most, that endorses quantitative easing to the fullest extent.”

The yen has tumbled 16% in the past six months as Japan’s Prime Minister Shinzo Abe, who took office in December, pushed for “bold monetary policy” to weaken the currency and defeat deflation. Analysts at banks from Nomura Holdings Inc. to Mizuho Securities Co. forecast that the Bank of Japan may add to monetary stimulus as soon as its April 3-4 policy meeting.

Gross also said the pound will fall because of quantitative easing, or the practice of buying assets such as bonds to increase the amount of money in the financial system. Sterling tumbled 6.7% versus the dollar this year through February, touching the weakest level in almost three years, yet remains 2.3% overvalued, based on an Organization for Economic Cooperation and Development measure of purchasing power parity.

A weaker currency typically boosts exporters’ competitiveness while making imported goods costlier.

Brazilian Real

Look to the U.S. dollar and euro for relative strength, Gross said, reiterating that Pimco, the world’s biggest manager of bond funds, favors the Brazilian real and that investors should avoid U.S. Treasuries maturing in 10 and 30 years.

The yen gained 0.1% to 93.35 per dollar at 12:45 p.m. in New York. The Japanese currency, which last traded at 100 per dollar in April 2009, is expected to drop to 95 by the end of the year, according to the media forecast of 100 contributors in a Bloomberg survey.

Gross, who wrote last week in his monthly investment commentary that asset-price irrationality is rising after years of record low benchmark interest rates, said today that the U.S. economy has to have real growth of 3% to justify the current market enthusiasm. Gross domestic product is forecast to increase 1.8% in 2013, according to the estimate of economists in a Bloomberg News survey.

Irrationality Scale

“Get us up to 3% in the second half of this year,” Gross said, adding that the enthusiasm today graded on the degree of irrationality is about a “six plus or seven minus” on a scale of one to 10.

The market is moving “closer to irrational exuberance, but it’s not necessarily irrational yet,” Gross said from Pimco’s headquarters in Newport Beach, California.

The Dow Jones Industrial Average rose above its highest- ever closing level today, erasing losses from the financial crisis after a four-year rally fueled by the fastest profit growth since the 1990s and monetary stimulus from the Fed.

The 116-year-old Dow gained as much as 1.1% to 14,286.37, climbing above the 14,164.53 record closing level it reached before the global financial crisis.

The $288 billion Total Return Fund managed by Gross gained 7.41% over the past year, beating 94 percent of its peers, according to data compiled by Bloomberg.

Bloomberg News

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