Two 'Dr Dooms' clash over Japan's prospects

Nouriel Roubini and Dr Marc Faber are both widely known in investment circles as ‘Dr Doom’ for their generally pessimistic views on markets.

As both have called markets correctly ahead of some of the biggest bear markets of recent years, it is striking when the pair disagree.

In this case, they are at odds on the future direction of the Japanese currency and its implications for Japanese equities.

Bullish on Japanese equities

Faber, author of the influential Gloom, Boom and Doom report, is relatively bullish on prospects for the Japanese stock market over the next 12 months because he is expecting the yen to depreciate in price.

Yet Roubini told Bloomberg that as the Japanese government went alone in its latest liquidity intervention last week it is more likely the yen will generally continue to appreciate, maintaining pressure on the Japanese economy and equities.

Acting alone rather in than in a coordinated fashion with other central banks will prove ineffectual, he argues.

He told Bloomberg: ‘The size of intervention matters as well as coordination. In this case, the Bank of Japan went alone. Usually uncoordinated intervention is less effective than coordination. The fundamental trends might lead to an appreciation of the yen further.’

His view is generally shared by John Velis, head of capital markets research for the Europe-Middle East-Africa (EMEA) regions at Russell Investments. He said earlier this week: ‘With an economy facing deflation, the central bank's seemingly last policy measure was to bring about a depreciation of their currency.

‘This is especially true as their export sectors faced increasing pressure. Having said that, we're not sure that the effects will be long lasting, as the intervention is uncoordinated (no other central banks are participating in this manoeuvre at the moment), but it was inevitable.'

Faber told the CLSA Asia-Pacific Markets annual conference in Hong Kong that Japanese stock market prices were set to rise on a one year view because the yen was likely to weaken.

The jury is out but it would seem only one Dr Doom can be right on this one.

Martin Currie's Donaldson bullish

The Bank of Japan has been pumping further liquidity into the system as the yen has continued to trade close to fifteen-year highs in recent weeks, threatening to kill off the country’s delicate economic export-led recovery.