Dollar Crashes against the Yen – Japan to drive Interest Rates higher?

Posted by Dennis Gartman - The Gartman Letter - Vitaliy Katsenelson

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Brief comment below from the Ledendary Trader Dennis GartmanFor subscription information for the 5 page plus Daily Gartman Letter L.C. contact – Tel: 757 238 9346 Fax: 757 238 9546 or HERE to subscribe at his website.

“THE US$ IS STRONG; THE YEN, ON THE OTHER HAND, IS SOARING and the forex world has been turned upside down since Friday afternoon with the month and quarter end now upon us and the attitude toward the dollar and the Yen turn sharply against those who’ve grown accustomed everyday and every minute to selling those currencies and buying the others. The boat, as we have warned too many times of late, has indeed become too heavily laden with US dollar and Yen bears, and  as the carry trades become too crowded, the rush to try to get through an ever smaller door to escape their losses before the month and quarter end is becoming maddening and difficult. The implications for the stock markets are not positive; the implications for the commodity markets are perhaps worse; the implications for the bond markets, on the other hand, are good and growing better.” – Dennis Gartman of The Gartman Letter.


Japan: Possible Culprit to Drive U.S. Interest Rates Higher

In investing, it’s important to think unconventionally and creatively while at the same time considering risks – no matter how remote or unmanageable they are. I keep thinking: What would drive our interest rates up in the US?

China is the obvious culprit as it’s the largest holder of our fine Treasury obligations. If China’s exports to the US don’t recover to the pre-Great Recession level then, considering its large overcapacity and bad-debt problems, it may quite suddenly find itself unable to buy as many of our bonds/bills. Or even worse, it may start selling them. But this scenario is one I’ve discussed in the past more than once.

Then you start looking down the list of who’s who in the ownership of our government debt, and you find Japan only slightly behind China. Japanese interest rates were circling around zero, but they still failed to stimulate the economy that’s been in a recession for as long as I can remember. The Japanese savings rate was very high, and thus, as government debt ballooned over the last two decades, it was happily absorbed by consumers who were net savers – they had extra funds to invest. However, Japan has one of the oldest populations in the developed world. As people get older they save less; thus the savings rate has been on a decline in Japan. (The fact that their exports fell 36% did not help their savings rate, either. To save you need income).

The appetite for Japanese bonds will decline in tandem with their savings rate. The Japanese government (and corporations) will have to start offering higher yields to entice interest in its bonds. Interest rates in Japan will rise, and this of course will put a significant interest-servicing burden on the already highly leveraged Japanese government. But more importantly (at least from our selfish US perch), Japan will finally become a formidable competitor for borrowing. Our borrowing costs will rise. In addition, Japan may also start buying less or selling US debt, not by choice but out of necessity, putting additional pressure on US interest rates.

Not to appear as an “on the other hand” economist (I’m not one), but the counter-argument to this is, the US consumer may become a net saver and will be able to offset (at least some of the) declining demand from our friends across the Pacific. – Vitaliy N. Katsenelson

Ed Note: The Legendary Trader Dennis Gartman will be speaking at the:


The Money Talks All Star Trading Super Summit
Saturday, October 24, 2009 -The Sheraton Vancouver Wall Centre


Click HERE for the Speaker Lineup and to REGISTER if you want to take advantage of this Event.

Mr. Gartman has been in the markets since August of 1974, upon finishing his graduate work from the North Carolina State University. He was an economist for Cotton, Inc. in the early 1970’s analyzing cotton supply/demand in the US textile industry. From there he went to NCNB in Charlotte, N. Carolina where he traded foreign exchange and money market instruments. In 1977, Mr. Gartman became the Chief Financial Futures Analyst for A.G. Becker & Company in Chicago, Illinois. Mr. Gartman was an independent member of the Chicago Board of Trade until 1985, trading in treasury bond, treasury note and GNMA futures contracts. In 1985, Mr. Gartman moved to Virginia to run the futures brokerage operation for the Virginia National Bank, and in 1987 Mr. Gartman began producing The Gartman Letter on a full time basis and continues to do so to this day.

Mr. Gartman has lectured on capital market creation to central banks and finance ministries around the world, and has taught classes for the Federal Reserve Bank’s School for Bank Examiners on derivatives since the early 1990’s. Mr. Gartman makes speeches on global economic and political concerns around the world.


Author of Japan: Possible Culprit to Drive U.S. Interest Rates Higher –Vitaliy N. Katsenelson

Vitaliy N. Katsenelson is a director of research at Investment Management Associates ( He is an author of Active Value Investing: Making Money in Range-Bound Markets ( (John Wiley & Sons, 2007). He is also an adjunct faculty member at the University of Colorado at Denver, Graduate School of Business where he teaches Practical Equity Analysis and Portfolio Management class. Katsenelson is a regular contributor to the Financial Times and Forbes; wrote articles for Barron’s, BusinessWeek, The Rocky Mountain News, Financial Planning Magazine and many other financial publications (, The Motley Fool,, MarketWatch. He is a CFA charter holder, member of CFA Institute and has served on the boards of the CFA Society of Colorado. Katsenelson received both his bachelor of science and his master of science in finance from the University of Colorado at Denver, where he graduated cum laude. Visit his site, Vitaliy’s Contrarian Edge (