1 gram of gold exceeds 10,000 yen! Gold has become the favorite of ‘Mrs. Watanabe’?

Gold has never performed better in yen terms as the yen continued to depreciate during the year...

Japanese investors holding yen-denominated gold bars have scored handsome returns for themselves so far this year. The domestic gold price in Japan has now risen to a historical high of over 10,000 yen per gram, with an increase of approximately 18% since January this year.

Fujitomi Securities commodities analyst Toshitaka Tazawa said the yen's plunge was the main reason for the rise in gold prices. The yen is near multi-decade lows and has fallen against all other G10 currencies this year.

This provides a strong reason for Japanese investors to hold onto rather than sell gold. In the past, gold prices have not necessarily benefited significantly from a stronger U.S. dollar against the yen, as the international benchmark is usually quoted in U.S. dollars.

Taketomo Washida, director of Japanese precious metals refiner Tokuriki Honten, said, "Retail customers usually tend to buy when they fall and sell when they rise. But they are not selling much now."

Many economists say the trend in retail gold prices, which gold shops across Japan have recorded for 18 months, reflects the changing attitude of Japanese households to risk as years of deflation give way to rising consumer prices. Transform quickly.

Jesper Koll, an economist and consultant at investment fund Japan Catalyst Fund, pointed out that the main driving force for Japanese households to buy gold is their eagerness to seek inflation protection after years of lacking a strong incentive to liquidate assets.

Since the COVID-19 epidemic upended the world economy, Japanese investors have also shown strong interest in gold-backed ETF products, with related holdings growing strongly starting in 2020. This is in sharp contrast to the overall global situation, which has seen significant outflows from gold ETF holdings as global investors continue to shy away from gold as they worry that the Federal Reserve will keep interest rates high for longer to curb stubborn inflation. Higher borrowing costs are generally a negative for gold, which does not earn interest.

Masashi Murata, president and CEO of Osaka Dojima Commodity Exchange, said speculation that the Federal Reserve will raise interest rates further is easing, which further enhances gold's appeal. "You might think gold would only strengthen in a risk-averse context, but in Japan, especially among retail investors, they will move their savings into investment vehicles such as gold and stocks."
Optimism requires caution
Of course, in the Japanese market, how high the price of gold can rise in the future may still depend on the performance of the yen exchange rate.
To be sure, continued yen weakness is not necessarily a sure thing. Over the weekend, after the Bank of Japan governor unexpectedly hinted at the possibility of ending the negative interest rate policy, the yen surged by more than 100 points on Monday. With the Federal Reserve and other central banks actively raising interest rates, interest rate differentials have been a key factor driving the yen's decline, but the "balance" in this area does not rule out the possibility of a reversal in the future.
Fujitomi Securities' Tazawa believes gold prices are likely to remain high, but this depends on how quickly the dollar falls against the yen and demand amid potential U.S. interest rate cuts.
Hideo Kumano, chief economist at Dai-Ichi Research Institute, warned that due to the small size of the market, people should not over-interpret the rise in Japanese gold prices.
"This may prove to be an anomaly, and even if inflation remains high, the country's aging population may not change their behavior and start spending heavily," he said.