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Japanese Seek Refuge in Bullion as Yen Slumps, Inflation Looms

Gold bars are displayed for a photograph at Tanaka Kikinzoku Jewelry K. K.'s store in Tokyo. Photographer: Junko Kimura/Bloomberg
Gold bars are displayed for a photograph at Tanaka Kikinzoku Jewelry K. K.'s store in Tokyo. Photographer: Junko Kimura/Bloomberg

April 23 (Bloomberg) -- Japanese consumers are poised to become net buyers of gold for the first time in eight years as the yen’s decline and looming inflation drive them to seek refuge in bullion, according to Standard Bank Plc.

Net sales of gold bars and coins by Japanese individuals shrank to 10.1 metric tons in 2012, the smallest amount since 2005, data from the World Gold Council show. A surge in purchases this month and the chance to buy after bullion slumped into a bear market foreshadow a turnaround in 2013, said Bruce Ikemizu, Standard Bank’s head of commodities trading in Tokyo.

The currency has depreciated 13 percent against the dollar this year and is trading near a four-year low after the central bank’s pursuit of unprecedented monetary easing to end deflation was unopposed by Group of 20 nations. Inflation may rise above 1 percent in the 12 months starting April 2014 and approach a 2 percent target as early as that year, Bank of Japan policy board member Ryuzo Miyao said April 18.

“The time has come for Japanese to buy gold with the government trying to engineer inflation,” Ikemizu, who has traded commodities for almost three decades, said in an interview in Tokyo yesterday. “Retail investors are turning from sellers to buyers of bullion.”

Japanese households have 1,547 trillion yen ($15.6 trillion) in financial assets, according BOJ data. They purchased 22.9 tons of gold last year from Tanaka Kikinzoku Kogyo K.K., Japan’s largest gold retailer, and sold 28.6 tons to the company, at an average price of 4,321 yen a gram.

Tocom Gold

Yen-denominated gold futures on the Tokyo Commodity Exchange climbed to a record 5,081 yen a gram on Feb. 7, before slumping along with dollar-priced bullion this month. The retail price of gold bars in Japan advanced to the highest level since 1980 on April 10, according to Tanaka Kikinzoku.

Tocom gold futures fell 0.3 percent to 4,553 yen a gram at 9:04 a.m. in Tokyo. Gold for immediate delivery posted the biggest decline since 1983 on April 15, and slid to $1,321.95 on April 16, the lowest level since January 2011. It was down 0.3 percent at $1,422.48 at 9:04 a.m.

Gold for delivery in Tokyo was offered at $1 to $1.50 an ounce higher than the metal for delivery in London last week, as gold stockpiled by Japanese bullion houses was depleted because of surging demand from consumers, Ikemizu said.

Every one-yen depreciation in the Japanese currency against the dollar can boost bullion prices in Japan by 50 yen a gram, assuming the international market is unchanged, Masahiro Arai, general manager at Tokuriki Honten Co., the nation’s second-largest bullion retailer, said on April 16.

Purchases from Japan will partially absorb metal flowing out of exchange-traded funds such as SPDR Gold Trust and give support to the international market, according to Ikemizu.

India, China

In India and China, the biggest gold-consuming nations, shoppers last week lined up in bazaars from Mumbai to Shanghai to buy the metal for brides, babies and strongboxes after prices fell. Indian consumers bought a net 312.2 tons of gold bars and coins in 2012, while purchases by individuals in China reached 265.5 tons, according to the World Gold Council.

Ending deflation would pave the way for Japanese Prime Minister Shinzo Abe to go ahead with a plan to double sales tax to 10 percent by October 2015 to reduce the nation’s fiscal deficit. The prospect of higher taxes has also spurred consumers to buy gold, Kate Harada, general manager at the precious metals department of Tanaka Kikinzoku, said in an interview in Tokyo on April 16.

“As Japanese begin paying more for fuel and some foods because of a weakening yen, they’re wondering how to hedge the risk of rising prices,” she said. “Gold is sought to protect against inflation and the yen’s debasement.”

To contact the reporters on this story: Aya Takada in Tokyo at atakada2@bloomberg.net; Yasumasa Song in 東京 at ysong9@bloomberg.net; Ichiro Suzuki in 東京 at isuzuki@bloomberg.net

To contact the editor responsible for this story: Brett Miller at bmiller30@bloomberg.net

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