PROOF: While The Bank Of Japan Goes 'Full-QE-Retard', Japanese Investors Are Hoarding Physical Gold


Japan’s Prime Minister Shinzo Abe has had an extremely busy past few weeks. After increasing the sales tax rate earlier this year which caused the GDP to contract by more than 7%, the Bank of Japan announced earlier this month it would step up its game and print money like never before. In a previous column we explained that Japan would print new money at twice the rate the USA was printing cash at the height of its quantitative easing program.

Even though Abe’s economic policy (called Abenomics) seemed to be working in the first phase of the implementation, the progress has stalled and Japan is now back in a recession again. This could be a huge indication that Abenomics is quite dead. In an attempt to resuscitate the policy, the huge money printing program has started and Abe has announced he would postpone a planned increase in the sales tax to 10% by 18 months years as the effect of another increase might have been devastating for the country’s economy. It was already quite weird for someone who wanted to increase the consumption pattern of the Japanese population to increase a sales tax (which obviously reduces the demand for goods) to get the country’s financial situation back in order.

Surprisingly enough, even though Japan’s economy is now officially in recession again Abe has called for new elections within the month. With Abenomics failing and the domestic economy tumbling back into recession, the central bank printing money like crazy leading to a severe depreciation of the Japanese Yen and an unpopular move to increase the sales tax from 5% to 8%, one would definitely not expect a democratic leader to ask the citizens of Japan to vote for him once again.

Japan Abenomics

But Abe has effectively called for elections which will be held on December 14th which is in less than four weeks from now, now that’s an electoral ‘Blitzkrieg’! It’s also quite easy to understand why the sales tax hike has been postponed as the prime minister needs to make himself popular with his citizens. But more than anything else, the elections were called to take the left side of the political landscape by surprise. As elections are a complete surprise for everyone, the left-wing parties haven’t organized and harmonized their opposition against Abe yet. On top of that, with such a short time frame before the elections it’s extremely unlikely the left side will actually be able to organize themselves and take up the glove Abe has dropped.

By adding this element of surprise, Abe just wants to secure another term in office despite his failing economic policy. As he’s a real politician, Shinzo Abe is still upbeat about Abenomics stating ‘it’s working’ but he seems to forget that even though the unemployment rate decreased and the company’s revenues increased, there still isn’t a noticeable increase in consumption and salaries. Realizing one out of three promises isn’t really what you’d call ‘passing’ the test. It’s also a very wise decision to ask the Japanese population for a vote of confidence before the newly-printed money will be felt by the man in the street through an increasing inflation rate.

Gold in Yen 1y chart


The ‘Abenomics -balloon’ is slowly deflating and Abe seems to want to secure his personal future before Japan’s economic situation deteriorates even further. The Japanese Yen has already lost 15% of its value in the past six months and with a failing economy and huge quantitative easing program we are expecting a further depreciation of the Yen. Meanwhile, the gold price in JPY has increased by almost 10% in the same six months, despite a 7.5% drop in the price of gold (expressed in USD). This once again emphasizes every decent investment portfolio should contain some gold and silver to protect yourself against sudden changes in the economic policy.

Our thesis seems to be confirmed as our research has indicated the total amount held in a physical gold ETF issued by Mitsubishi UFJ - "Fruit of Gold" - has increased exponentially since Abenomics went in full force, as can be seen on the following chart.

Mitsubishi UFJ Japan Physical Gold ETF - AUM


The amount of gold is expressed in grams. So whereas this ETF had roughly 1 million grams of gold in 2010 ( 32,150 ounces), this increased exponentially and almost eightfolded in just a few years time. The vertical red line is the moment the Bank of Japan started behaving irrational and you can clearly see the interest to hold physical gold has increased since then. The smart Japanese have mobilized their money and invested it in physical gold to safeguard and protect their purchasing power. And they are right to do so!

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