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Gold in Yen Hits New Record as Nikkei Finally Beats 1989 Bubble Top

Japan gold price up 430% since 1989 stock-market peak...
The PRICE of GOLD BULLION recorded a run of new all-time high for Japanese investors this week as the Tokyo stock market finally topped its 'bubble economy' peak, set on the final trading day of 1989.
Trading at ¥9790 per gram around London's 3pm fix on Thursday – the global benchmark for physical bullion – the gold price in JPY has risen by 430% since the Nikkei 225 share-price index set what proved to be a 34-year high.
Across the last 5 decades, that puts the Nikkei and gold priced in Yen virtually neck and neck in terms of gains for Japanese investors and savers, rising 811% and 818% respectively since the start of 1974.
Chart of gold priced in Japanese Yen vs. the Nikkei 225 price index. Source: BullionVault
The second-largest economy in 1989 behind the USA, Japan last year slipped into 4th position measured in Dollars as its gross domestic product fell further behind China and was overtaken by Germany – itself now in recession – thanks to the Yen dropping 6.4% versus the US currency.
Falling for the 3rd year running, the Yen in 2023 reached its cheapest FX exchange rate since 1990 as Western central banks – led by the US Federal Reserve – all raised their interest rates in the face of strong inflation.
But while Japan's core cost of living rose by 3.1% last year, the fastest inflation in more than 4 decades, the central bank in Tokyo stuck with the low and then negative interest-rate and QE bond-buying policies it has applied since the 125-million citizen nation slid into a post-bubble recession and then deflation in the 1990s.
"The erosion of Yen value has prompted a revaluation [of gold in JPY]," says Bruce Ikemizu, formerly head of precious metals at the Tokyo branch of Chinese-South African bullion bank ICBC Standard, and now director of the Japan Bullion Market Association.
"An increasing number of investors [are] viewing gold as a hedge against both inflation and yen depreciation."
The BoJ will finally end its negative-rate policy at its meeting in April according to 4-in-5 economists polled by Reuters today. Most of those also believe it will also finally abandon what remains of its 'yield curve control' program in Japanese government bonds as well.
"Older generations traditionally favoured the safety of bank deposits," says Ikemizu – winner of the 2023 gold price forecast competition held by the London Bullion Market Association – but having been "the primary buyers of gold in the 1980s and 1990s, [now they] are exiting the scene and selling their gold."
This extends the pattern of net gold selling by Japanese investors seen since the early 2000s, when a steep rise in bullion prices worldwide first triggered heavy profit-taking. Those outflows saw additional selling in the mid-2010s after a change in Japan's VAT sales tax rules encouraged gangsters to buy bullion coins and small bars in neighboring Korea, smuggle them home, and sell them to domestic retailers – earning an 8% tax rebate on top of the sale price – with the unwanted metal finding its way back to the global market.
Chart of Japan's net gold coin and retail bar demand since 2001 vs. Yen gold price. Source: BullionVault
While Japan's VAT-scam gold smuggling has subsided following a government crackdown, "a younger demographic, largely unaffected by historical gold prices, is entering the market" to invest in bullion, says Ikemizu.
"Even with gold prices in Yen reaching unprecedented levels, there is a surprising absence of a surge in selling from gold holders."
Alongside Thursday's fresh record high in Yen gold prices, the Nikkei 225 share index closed Tokyo trade at 39,098 points, rising as global stock markets gained following a strong earnings report from AI chipmaker Nvidia (Nasdaq: NVD) and closing some 0.5% above its prior record.
With NVDA almost tripling in price from this point last year, New York's Nasdaq 100 index of tech stocks has now risen 49.3% over the past 12 months. The Nikkei rose 28.9% in the Japanese 'bubble' year topping out on 29 December 1989.
Over the following 2 decades, the Nikkei 225 would lose 82% of its nominal value, almost matching gold's 86% drop in Yen terms over the 20 years following its peak of January 1980.
Including corporate dividends, the Nikkei Total Returns Index topped its 'Tokyo Bubble' peak in early 2020, back when the price index was still 30% below its 1989 high.

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