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Posted by on Aug 15, 2016 in Market Insight

Nothing is Going Well for Japan

Nothing is Going Well for Japan

August 15, 2016

Dennis Gartman is editor and publisher of The Gartman Letter, and strategic advisor of the AdvisorShares Gartman Currency Hedged Gold ETFs (GEUR & GYEN). He regularly contributes to AlphaBaskets and lends his institutional insight to educate advisors and investors about commodities and the forex markets, including about trading gold in different currency terms.

The Yen is once again sharply higher while the EUR is marginally so, and the Yen’s strength is all the more surprising in light of the fact that Japanese GDP reported earlier today was well below expectations. Ahead of the report, the consensus was that growth in the Japanese economy in the 2nd quarter would be on the order of +0.7% it was instead a scant +0.2%. Further, we must remember that Japan reports this data in a rather strange way, for these are annualized GDP figures. Quarter-on-quarter, the 2nd quarter of this year showed no growth at all compared to the 1st quarter.

Worse for Japan, private consumption rose only 0.2% in annualized terms, down from the 1st quarter’s already anemic +0.7% growth. Worse even still, capital expenditures actually fell in the 2nd quarter, falling 0.4% and this follows the 1st quarter’s -0.7% pace. Nothing is going well for Japan at this point and yet the Yen strengthens. Go figure!

All we know for certain is that Mr. Abe’s Three Point program to spur the economy forward seems incapable of trumping the continued demographic collapse that is taking place in Japan. Apparently, it matters not what the government does in the way of promoting fiscal deficits and spending programs, money from abroad is being repatriated back to Japan by that nation’s increasingly elderly and smaller population. Toyota, Sony, the ship builders et al may wail and gnash their teeth regarding the too strong and continually strengthening Yen, but it seems not to matter. Mr. and Mrs. Watanabe want their money back and they are demanding it from abroad.

Regarding gold, Friday proved yet again to be a “Frantic, un-Friendly Friday,” as has happened rather frequently over the course of the past several years, with gold trading pleasantly higher until midmorning when a bout of very severe selling took it lower upon the day in a delayed response to the PPI and Retail Sales figures. A “reversal” of sorts was the end result and, not only did gold in US dollar terms “reverse” to the downside, but the very well defined and therefore materially important trend line extending back to June’s lows was… and is… put under assault.

Gold is bouncing from its worst levels Monday morning and indeed in the spot it is trading $8-$10/oz. better than its lowest level on Friday. But the volumes transacted seem small and the damage wrought Friday seems still to be severe. It shall require a move upward through $1350/oz./ in spot gold today to off-set the damage wrought on Friday. Our only solace is that Gold/EUR has held important support at €1195/oz., and is trading above the technically and psychologically important €1200/oz.

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