Retail investors in Japan flooded into the gold market in 2013, as Shinzo Abe’s quantitative easing policies aimed at breaking Japan’s deflationary spiral began. Japan’s largest precious metals retailer, Tanaka Kikinzoku Kogyo K.K., reported that gold sales leaped by 63% to a five-year high of 37.3 tonnes. This of course does not count bullion purchased through other retail channels or imported from overseas suppliers.
This level of purchases was ignited by the Japanese government’s pledge to raise inflation to 2% in two years, and the announcement that the national sales tax would increase from 5% to 8% in April 2014. The value of the yen has fallen against the dollar for more than a year, making gold more expensive in Japan, so when the gold price crash hit last April, Japanese “backed up the truck” and took advantage of the situation.
Prudent investors in Japan, and elsewhere, recognize the perils inherent in central bank money printing, and place little confidence in either the Fed or the Bank of Japan being able to stop inflation once it gets started.
Recently, Bloomberg ran a story on the unease many in Japan are beginning to feel as the Bank of Japan says it hasn’t even started thinking about a strategy to stop rising inflation. Inflation is more than halfway to Abe’s stated goal of 2%, and the central bank is still running full steam ahead with the world’s most ambitious quantitative easing program. Some economists worry that the BOJ has already waited too long to being braking inflation growth. The Bloomberg article cites Richard Koo, a former Fed economist specializing in Japan, as saying “It may be too late to prevent long-term rates doing something crazy” should the BOJ hold off on tapering before inflation reaches the target.