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The retail price of gold in Japan jumped to an all-time high as the yen continues its historic decline against the US dollar and cash-strapped households rush to find a way to hedge against inflation.
Buying yen-denominated gold at the country’s largest dealer has pushed the yellow metal’s price above 10,000 yen per gram for the first time in recent days. It was trading at 10,100 yen on Tuesday, according to retail prices published by Tanaka Keikinoku, one of Japan’s largest gold retailers.
The retail price of gold in Japan – the main reference price for the metal in the country – tracks global spot prices, which have risen due to the coronavirus pandemic, the war in Ukraine, and tensions between China and the United States. It also reflects a sharp decline this year in the value of the yen, which recently surpassed 146.5 yen to the dollar – a level that last year led to verbal market intervention by Japanese authorities.
Currency analysts said the yen was likely to remain weak as long as there was no signal from the Bank of Japan that it was ready to tighten its ultra-loose policy, and the gap in interest rates with the United States and Europe remained wide.
The move in retail gold prices, which continues an 18-month run at gold stores across Japan, was part of a rapid shift in household risk attitudes as years of deflation gave way to higher consumer prices, economists said.
Jesper Kohl, an economist and adviser to the Japan Stimulus Fund, an investment fund, said the main motivation for buying by Japanese households was an urgent search for protection from inflation after years of not having a strong incentive to move assets out of cash. “The fact that gold is a non-yen asset helps, but inflation is the catalyst,” Cole said.
Japanese households have emerged from the pandemic with a record more than 2 quadrillion yen in accumulated assets, or about four times the country’s annual gross domestic product. Nearly half of that amount was held in cash and deposits, a balance closely monitored by Japanese stock houses, which are trying to convince clients that inflation is here to stay and that they now need to shift their savings into other financial products. Core consumer price inflation in Japan reached 3.1 percent last month.
“Inflation in Japan is at a crossroads,” said Tomohiro Ota, chief Japanese economist at Goldman Sachs, noting that although consumer prices continue to rise, some of the increase is due to temporary government support while consumption growth has stalled since March. . Goldman Sachs expects the value of the Japanese currency to reach 155 yen to the dollar within the next six months.
Gold has become particularly attractive to clients concerned about the yen falling to multi-decade lows and their yen-denominated assets, said Ichiro Kato, general manager of Tanaka Keikinoku’s precious metals retail division.
He added that central banks’ purchases of gold and the flow of news about the US economy and central bank policies are all factors that prompted the decision to buy gold in yen in the hope that the price of dollar-denominated gold will remain high and stable.
“We do not see many factors that would cause the dollar-denominated price to fall significantly, and we believe that the yen-denominated price may rise further if the yen continues to weaken,” Kato said.
However, Hideo Kumano, chief economist at Dai-ichi Research Institute, cautioned against overestimating the rise in the price of gold in Japan due to the small size of the market.
“This may be an anomaly and the country’s elderly may not change their behavior and start consuming, even if inflation remains high,” he said.