The temporary (very temporary) Band-Aid placed on the global economic dike today by the German court ruling (see Stocks Rally in Yet Another Futile “We are Saved” Trade; Greek 1-Yr Yield hits 97%, “No Blank Checks”; Gold Decouples) is already in question, not in Europe but in Asia.

Please consider Japan machinery orders slump, signal weak investment

Japan’s core machinery orders tumbled in July at twice the pace economists’ had expected in a sign that companies are delaying investment due to worries about a strong yen, slackening global growth and slow progress in reconstruction from the March earthquake.

The current account surplus fell more in the year to July than the median estimate as exports weakened, highlighting concerns that a strong yen and a stuttering global economy could hamper Japan’s recovery from the post-quake slump.

The disappointing data could place some pressure on the government and the Bank of Japan, which highlighted risks to growth after leaving monetary policy on hold on Wednesday, to ensure that the yen doesn’t strengthen further.

The yen has been attracting safe-haven demand from investors unsettled by Europe’s sovereign debt crisis and signs of U.S. economic slowdown even as Japan struggles with its own debt burden and its new government faces a long battle to gain consensus over how to fund reconstruction from the March 11 earthquake and tsunami.

Japan is on guard against further yen appreciation after intervening in currency markets last month when its currency approached a record high versus the dollar.

Japan’s economy probably shrank at a faster annualized pace in the second quarter than the government’s initial estimate as corporate spending fell at a quicker rate due to the strong yen and a slowdown in the global economy, a Reuters poll showed before the release of the data on Friday. ($1 = 77.325 Japanese Yen)

Beggar-Thy-Neighbor Insanity

As I have pointed out on numerous occasions, Japan wants to increase exports, China wants to increase exports, the US wants to increase exports, Germany wants to increase exports, Brazil wants to increase exports, and Europe in general wants to increase exports.

Every country on the planet wants to increase exports. Switzerland initiated a policy to “Buy Foreign Currency in Unlimited Quantities” to drive down the value of the Swiss Franc to save its export machine.

Beneficiary of Beggar-Thy-Neighbor Insanity is Gold

It is a mathematical impossibility for every country to be a net exporter. Yet every country attempts to do just that with Beggar-Thy-Neighbor policies.

Gold is the beneficiary of these currency debasement policies.

I see no reason to believe central banks have ended currency debasement. Thus I see no reason to believe the runup in gold prices is over.

Mike “Mish” Shedlock
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