Japan political chaos cloud gold demand
outlook
01:40 a.m. Jul 13, 1998 Eastern
By Aya Takada
TOKYO, July 13 (Reuters) - Sunday's election
setback for Japan's ruling political party and the
resignation of the prime minister is adding to the bleak
outlook on Japanese gold demand, already dampened
by the nation's first recession in 23 years, industry
officials said on Monday.
The dollar jumped as high as 144.50 yen on Monday
morning in Tokyo, as the yen came under pressure
after Prime Minister Ryutaro Hashimoto's Liberal
Democratic Party (LDP) took only 44 seats of the 126
up for grabs in the Upper House election.
Hashimoto said on Monday he would resign to take
responsibility for his party's defeat.
''If the yen's fall against the dollar continues amid
political turmoil, gold sales by investors will probably
pick up as the weak yen will boost yen-based gold
prices,'' an official at a Japanese bullion house said.
''If political woes delay the implementation of Japan's
economic stimulative policies, it will be negative for
gold demand,'' he added.
Traders said Japanese gold demand in the first half of
this year was expected to have fallen by more than 20
percent on a year-on-year basis amid the recession.
Gold demand in jewellery is deteriorating as
bankruptcies at Japanese jewellers continue at a high
pace, traders said.
According to Teikoku Databank, a private credit
research company, 67 jewellers went bankrupt in
Japan with cumulative debt of 29.1 billion yen in the
first five months of this year.
This compares with 65 bankruptcies with 71.5 billion
yen debt in the same period last year.
Gold demand in the electronics and other industries is
weakening as manufacturers cut output to cope with
lower sales.
Demand in the investment sector is also sluggish, with
profit-taking overwhelming buying due to the yen's
downtrend against the dollar.
''I expect Japanese gold demand in the first half of this
year to plunge by as much as 25 percent on a
year-on-year basis,'' another bullion house official said.
''I don't expect demand to recover in the second half,
as the economic measures the Japanese government
has so far proposed appear to be ineffective in
improving consumption and the economy overall,'' he
said.
In 1997, Japanese gold demand in the jewellery sector
fell by 12.2 percent from the previous year to about 65
tonnes, while demand in the industrial sector dipped by
2.7 percent to around 110 tonnes, the official said.
Japanese gold demand in the investment sector in
1997 jumped 12.9 percent year-on-year to about 70
tonnes, as a string of failures of Japanese financial
institutions in November and December stimulated
gold investment, he added.
But such ''flight-to-quality'' buying of gold ebbed this
year amid a lack of further collapses of major
Japanese banks and securities firms, he said.
Sales of gold investment products through bullion
house retail channels in the first half of 1998 plunged
by 28.3 percent compared with the same period last
year, he said.
''Last month, purchases of gold investment products
were overwhelmed by sales, as investors took the
yen's depreciation against the dollar as a chance for
profit-taking,'' he said.
The dollar rose to an eight-year high of 146.75 yen on
June 16, against the backdrop of persisting concerns
over the Japanese economy.
Itsuo Toshima, area manager for Japan of gold
industry body World Gold Council (WGC), said
Japan's ''Big Bang'' financial deregulation launched in
April was a positive incentive for gold investment, as a
concept of asset diversification was filtering to wealthy
Japanese who traditionally preferred safe financial
products such as bank deposits.
Toshima also said gold's role as a hedge against
financial crisis was being revalued, and that gold
investment was likely to increase again if the
government's efforts to clean up Japan's bad-loan
mess stimulated failures of troubled banks.
((Tokyo Commodities Desk +81-3 3432 7391
tokyo.commodit.newsroom+reuters.com))
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