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Posted by on Apr 11, 2016 in Market Insight

The Yen Rally; Getting Serious

April 11, 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.

For Japan and for Japanese industries this continued and material strength in the currency is a very real concern for Japan’s industries are even more dependent upon export trade than they’ve been in the past given the demographic collapse that the country is in the midst of. In a nation whose population is plunging and whose remaining citizens are growing older rapidly there is little in the way of domestic demand for goods and services that can be counted upon. Exports are more and more dear to Japan’s industries with each passing day and the strong Yen only serves to make their problems more and more certain. Hence the strong Yen has given way to a much weaker Japanese stock market today, and hence the strong Yen is making life very difficult for Mr. Abe, for the LDP generally, for the Ministry of Finance and for the Bank of Japan.

This is all the more certain in light of economic news today out of Japan where the latest figures on “Machine Tool Orders”… perhaps the singularly most important data point on the Japanese economy issued monthly as far as we are concerned and a figure we’ve focused on for decades… fell 9.7% month-on-month in February. Some shall argue that this was pleasantly better than the 12+% decline that had been rumored in Japan’s financial district prior to the report’s release and that is indeed true; it was better than had been feared. But a 9.7% tumble is a horrendous number and given that it was that bad in February before the Yen had begun to strengthen, we wonder what next month’s and the month after’s numbers shall look like. Certainly they shall be ill. Also, as we look a bit more deeply into the numbers we note that “orders” from the services industries there in Japan rose just a bit more than 10% while orders from “manufacturers” fell a truly stunning 31% (both rounded to the nearest whole numbers as is our wont).

Gold is strong not only in dollar terms, but is strong too in almost all currency terms and we see this trend continuing long into the future.