Japan's biggest gold retailer and refiner, Tanaka Kikinzoku Kogyo K.K., is reporting a sharp increase in gold-buying in the world's third-largest economy. This is widely seen to be in response to all of the confusion and uncertainty surrounding the continued use of negative interest rates by the Bank of Japan (BOJ).
Safe Haven for Savings
“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,” said Takahiro Ito, the chief manager of Tanaka's main retail store in the Ginza shopping district located in the capital city of Tokyo.
The safe haven appeal of gold has been even stronger now that the reality of subzero interest rates is beginning to sink in. As this wildly unconventional policy takes hold, banks are being encouraged to lend. At the same time, however, investors are searching for better places to park their wealth than in a bank due to the unsettling fear that policies will grow even more extreme and unpredictable in the future.
It's not just the sophisticated investment crowd that's seeing the problems with negative rates, either. Average citizens across Japan are expressing confusion over what may come next from the banking system. Will they charge account holders just to keep their savings accounts funded? Will they turn to Iceland-style "bail-ins" in order to keep people from pulling all of their money out of the financial system?
Due to these concerns, people across Japan are choosing instead to put their money into gold thanks to its traditional status as a store of value. Gold bars in Japan have been seeing prices exceeding ¥5,000 per gram ($44 per gram), and people are still buying. When the banking system is so out of whack, it only stands to reason that people concerned about their wealth would turn to alternative methods of protecting it.
Japan and the Grasshopper vs. the Ant
Alongside the surge in gold-buying has been a rapid increase in the number of home safes being purchased in Japan. It only makes sense that people would feel safer keeping their money at home amid such an economic environment that has the potential to punish savers. While the country's economic officials are concerned that this trend of stashing away money is a detriment to the national economy, putting a dent in consumer spending and economic activity, it is the unavoidable consequence of negative interest rate policy (NIRP).
The Japanese seem well aware of the fable about the ant and the grasshopper. (In some versions, it's a squirrel and a grasshopper.) While the grasshopper simply enjoys itself singing and dancing all summer long when food is in abundance, it is the ant who is wiser, spending his time storing food in anticipation of winter. When the seasons change, the ant is well-prepared and able to survive, while the grasshopper is left hungry in the cold. This tale goes back to ancient times, and has been retold in classics like Aesop's Fables and elsewhere. It seems to apply directly to what we're seeing with the shift toward saving during tough times.
The BOJ is not alone in implementing this policy, as central banks across Europe have joined the NIRP fraternity. At this point, there seems to be no telling what lengths these central planners will go to in order to reflate their economies. At this point, however, the citizenry seems increasingly unwilling to go along with it, choosing the wisdom of the ant over short-sighted foolishness of the grasshopper.
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