Japan's Biggest Gold Retailer Says Negative Rates Boost Demand

Japan’s negative interest rates are boosting demand for gold, according to the nation’s biggest bullion retailer.

International prices have rallied 18 percent this year as investors seek a haven from financial market turmoil. For individual investors, the Bank of Japan’s surprise move in January is adding to gold’s allure, according to Takahiro Ito, chief manager at Tanaka Kikinzoku Kogyo K.K.’s store in Tokyo’s Ginza shopping district. That’s helped lift retail prices to their highest since July.

“Many customers are wagering that it’s better to turn their savings to gold as a safe asset rather than deposit money at banks that offer low interest rates,” he said in a phone interview last week.

The price of gold bars climbed to 5,027 yen ($44) a gram on March 11, the highest since July 7, according to the Tokyo-based company. “Many customers usually sell gold, but we get the feeling that more customers are buying gold even at prices exceeding 5,000 yen,” Ito said.

In a bid to stimulate bank lending, the BOJ has joined the European Central Bank in setting rates below zero. While that should also spur investment in higher-yielding assets, it may also have had the unintended consequence of households squirreling away cash -- or turning to a traditional store of value such as gold. Sales of safes in Japan are surging, suggesting as much.

The BOJ’s policy has led to misconceptions among investors, said Ito. Some buyers believe that negative interest rates could be accompanied by bank fees on savings, while older Japanese fear a repeat of their experience after World War II, when the government restricted cash withdrawals to stem inflation.

The move to gold among retail investors is showing up elsewhere. In the U.K., Online Trading service BullionVault said on March 1 the number of new customers more than doubled in February, reaching the highest since April 2013.

“Worsening fears over negative rates and political risks like Brexit have led the return of some money managers to gold,” Adrian Ash, head of research at the firm said in a report. “A fast-growing number of private investors have also begun buying gold as insurance.”

Consumer demand in Japan rose to 32.8 metric tons in 2015 from 17.9 tons a year earlier, making it the seventh largest consumer in Asia, according to the World Gold Council. Spot gold was 0.4 percent higher Monday at $1,254.76 an ounce.

--With assistance from Ranjeetha Pakiam To contact the reporters on this story: Ichiro Suzuki in Tokyo at isuzuki@bloomberg.net, Masumi Suga in Tokyo at msuga@bloomberg.net. To contact the editors responsible for this story: Yuji Okada at yokada6@bloomberg.net, Jason Rogers at jrogers73@bloomberg.net.

By: Ichiro Suzuki and Masumi Suga

©2016 Bloomberg News