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Gold Price in Yen Hits New Record as Bank of Japan Finally Quits Negative Interest Rates

The PRICE of GOLD held little changed for Western investors on Tuesday, but the 'safe haven' precious metal made a new all-time high in Japanese Yen after the central bank in Tokyo finally ended its negative interest rate policy in the face of rising inflation.
With the US Federal Reserve due tomorrow to unveil its first set of economic, inflation and interest-rate 'dot plot' forecasts since December's 2024 rate-cut surprise, gold priced in Dollars slipped $10 per Troy ounce on Tuesday to $2153 in London trade.
But the gold price in Yen rose to new all-time highs, trading 1.5% higher from this time last week at a peak of 10,442 per gram.
As the Bank of Japan held deposit rates at or below zero over the last decade, gold prices in JPY rose more than 140% across the 10 years ending 2023.
Gold jewelry demand in Japan meanwhile totaled 161 tonnes of bullion, the Japan Physical Gold ETF trust fund (TYO: 1540) saw net inflows of 23 tonnes, but households were net sellers of 3 tonnes of small gold bars and coins.
Chart of gold price in Japanese Yen vs. Japan's private-sector gold demand. Source: BullionVault
Having fought deflation in wages and the cost of living since the Japanese equity and real-estate bubble burst at the end of 1989, "The virtuous cycle between wages and prices has become more solid," said the Bank of Japan, issuing 6 separate press releases to announce and implement a raft of policy changes including the end of buying stock-market ETF trust funds.
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Despite inflation taking off only after the world's Covid lockdowns ended with a global supply-chain shock and then the Russia invasion of Ukraine, "Large-scale monetary easing measures have fulfilled their roles," claims the BoJ, "including the negative interest rate policy and the yield curve control."
First to push deposit rates below zero in 2009-2010 during the global financial crisis, Sweden's Rijksbank abandoned 8 years of negative interest rate policy in April 2022.
The European Central Bank then ended negative rates for the Euro in July 2022 – also 8 years after imposing deposit costs on savers – and the Swiss National Bank ended NIRP after 7.5 years that September 2022, when the Danish Nationalbank also moved to positive rates for the first time since 2014.
"The BoJ ended ZIRP and hiked for the 1st time in 17 years but the JPY still weakened as they weren't hawkish enough vs expectations/positioning," says Nicky Shiels, strategist at Swiss bullion refining and finance group MKS Pamp
"[Tokyo's central bankers] are only entering a small tightening cycle which will keep [the] real [interest] rate negative" after accounting for inflation. "[That's why gold priced in Yen] strengthened some more from even ridiculously lofty levels...
"[Gold] just indicates the BoJ have lost control (and all creditability) of monetary policy."
With the US Fed due to update its own year-end rate forecast tomorrow – last given as 4.6% in its December 'dot plots' – the futures market today showed a consensus forecast of 4.65% for Christmas 2024, down 2 basis points from Monday's jump to the highest since end-October, back when the gold price in Dollars was trading at $1980 per Troy ounce.
The Bank of England is also expected to make no change to current interest rates when it speaks on Thursday.
The UK gold price in Pounds per ounce today slipped back through £1700 but held unchanged for the week so far at £1694. So too was the gold price in Euros – for which the ECB again left its key policy rates unchanged earlier this month – trading at €1982.
The Nikkei 225 stock index rose 0.7% following today's BoJ decision, but it failed to reach late-February's fresh all-time highs, when the Tokyo stock market finally recovered and broke above its end-1989 bubble top high.
European and US stock markets were very quiet ahead of the Fed, meantime, but so-called cryptocurrency Bitcoin sank over 7% on the day and lost 12% from last weekend as the US-listed BTC ETFs approved in January saw heavy shareholder outflows.
Japan's state pension fund – the world's largest retirement saving pot – said Tuesday it is exploring investing in what it calls "low liquidity assets" including Bitcoin, forestry and gold.
Ending 2023 with its $1.5 trillion portfolio split 25% in each of domestic and foreign bonds and equities, the Government Pension Investment Fund made a return of 12.0% last year in terms of the Japanese Yen, but only 4.1% in US Dollars.
Since the start of the millennium, the GPIF has grown 143% by Yen value.
Gold priced in the Yen has risen by 881%.

Adrian Ash

Adrian Ash, BullionVault Gold News

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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