US Dollar Surge Coming

Japan Tops China Buying Treasuries After Lost Decade (Update2)

By Wes Goodman and Cordell Eddings

Nov. 9 (Bloomberg) -- Japanese investors who lived through a decade of deflation and recessions say U.S. Treasuries are a bargain even with yields at about the lowest levels since at least the 1960s.

Japan bought a net $105 billion of U.S. government debt through August, exceeding China as the biggest foreign buyer and boosting its holdings to $731 billion, or more than 10 percent of the total market, Treasury Department data show. The 17 percent increase is the most since a 25 percent surge in 2004.

Mizuho Asset Management Co. and Mitsubishi UFJ Asset Management Co. are among the investors buying U.S. bonds because they see similarities between America’s response to the recession and their government’s efforts during the so-called lost decade of the 1990s. An index of Japanese debt securities compiled by Bank of America Corp.’s Merrill Lynch unit returned 90 percent in the 1990s, while the Nikkei 225 Stock Average fell as much as 67 percent between January 1990 and October 1998.

“The U.S. economy has faced a double whammy: the recession and credit contraction,” said Akira Takei, head of non-yen denominated bonds at Mizuho Asset in Tokyo, a unit of Japan’s second-largest bank. “The U.S. will face a triple whammy with deflation. That’s good for the Treasury market.”


The US dollar rebound is coming. The dollar will surge when deflation kicks into high gear. I am anticipating we may see 72 on the US dollar index before this happens, as a major support level at 75 to 76 seems to be breaking down.
In the meantime, we can expect stocks and crude to rally a little longer before the big correction arrives.