Photographer: Kiyoshi Ota/Bloomberg

Japan's Gold Sales Jump Thanks to Abenomics Worries

  • Gold sales rise 60% in June from May at Tanaka Holdings
  • Investors ‘seeking to protect their assets’: adviser Toshima

Tetsushi Kudo, a 50-year-old office worker, bought a one-ounce gold coin this month for the first time. With stocks slumping and zero percent interest on savings, he says it won’t be the last.

“I want to buy gold every year as a birthday present for my daughter,” Kudo said at a store in Tokyo’s posh Ginza district where he made the 162,000 yen ($1,600) purchase. “She will thank me for the gift when she grows up because gold will have value wherever she goes.”

QuickTake Gold's Ups and Downs

Individual investors like Kudo drove a 60 percent jump in sales of the precious metal in June from May at Tanaka Holdings Co., the operator of Japan’s largest bullion retailer, as the yen’s rebound against the dollar made it more affordable. While Prime Minister Shinzo Abe’s ruling party scored a convincing victory in July 10 upper house elections, confidence in his economic policies is flagging. A July 2-3 Asahi newspaper poll showed 55 percent of those surveyed support a new direction versus 28 percent for maintaining course.

Strong Yen

The yen’s 17 percent gain this year is a reflection of Japanese investors fleeing from overseas markets due to pessimism about global growth rather than confidence in their own economy. Gold sales more than tripled at Tanaka’s shops on June 24, when the Japanese currency jumped to an almost three-year high against the dollar after the U.K. decided to exit the European Union. Japan’s Topix stock gauge dropped the most in five years the day after the Brexit referendum, while 10-year sovereign bond yields tumbled further below zero.

“For investors, buying gold is similar to casting a no-confidence vote,” said Itsuo Toshima, 68, an investment adviser and former regional manager for the World Gold Council in Tokyo. “Gold is the unprintable currency, unlike the yen. The yen’s appreciation in spite of the adoption of the negative-rate policy has kindled skepticism about the policy’s benefits. It’s also led to investors seeking to protect their assets in case Abenomics fails.”

Gold’s lack of yield isn’t a big draw-back for investors at a time when almost 90 percent of Japanese government bonds have yields below zero, according to Eiichiro Kato, a general manager at Tanaka’s precious metals retail department. The benchmark 10-year JGB yield was at minus 0.265 percent on Tuesday.

Falling Yields

Record Bank of Japan bond purchases are pushing down Japanese yields even as the nation’s debt balloons to the equivalent of about 250 percent of economic output, according to International Monetary Fund projections. Abe delayed a sales tax increase for a second time on June 1 in the face of weak consumer spending.

“We don’t know who will take responsibility for reducing Japanese government debt,” said Akihiro Morishige, a senior economist at Mitsubishi Research Institute. “If trust in Japan’s fiscal policy decreases, Japanese long-term interest rates may soar towards 5 percent by 2030.”

Japanese buyers of gold to store in Switzerland jumped 62 percent in the first six months from the second half of 2015 because of negative interest rates and concern the yen will eventually weaken, according to BullionVault Ltd., an online trading and storage company.

“It’s beyond the central bank’s capacity to control anxiety spreading across the globe in post-Brexit era,” said Yoko Takeda, the chief economist at Mitsubishi Research Institute and a former researcher at the BOJ.

Shunning Risks

Japanese investors appear to be retreating from riskier assets as the nation’s shares plunge. Households’ holdings of equities decreased 9.9 percent from a year earlier at the end of March and investment trusts fell 3.7 percent while their cash and bank deposits rose 1.3 percent to 894 trillion yen, the second-highest amount on record, according to BOJ data.

Gold in yen terms has risen 8 percent this year, compared with the 27 percent jump in the dollar-based price of the metal. The Japanese currency extended losses against the dollar on Tuesday after its steepest decline since October 2014, as investors awaited details of the stimulus package promised by Abe. It traded at 103.12 per greenback as of 10:18 a.m. in Tokyo.

“Gold is attractive because its prices don’t move much, compared with other assets,” said Kudo, the buyer of the coin in Ginza. “I may lose lots of money if I buy stocks without doing much research on them."

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