The yen's downward trend shows no signs of stopping as Japanese people scramble to buy gold.

Recently, due to the fall of the yen, which is renowned as a safe haven, people have turned to gold as a hedge against inflation, causing the retail price of gold in Japan to soar to a historic high.

According to previous reports from the media, the retail price of industrial gold at Tanaka Kikinzoku, which is considered as the benchmark for gold retail prices in Japan, surpassed the 10,000 yen per gram mark on September 5th, reaching 10,100 yen per gram, and remained high thereafter. On the 7th, the price was 10,069 yen per gram, equivalent to 499 yuan.

Since the beginning of this year, international gold prices have remained high.

Despite the continuous strengthening of the US dollar since August, approaching a new high for the year, and the rapid rise of real interest rates on US bonds (which historically have a perfect negative correlation with gold), the gold price has not been significantly suppressed and has remained relatively strong.

The reasons behind this include the ongoing geopolitical tensions and increasing global economic uncertainty, which have boosted the demand for gold as a safe haven.

However, relatively speaking, the surge in the retail price of gold in Japan reflects more the sharp depreciation of the yen. On September 15th, the yen fell to 147.7 against the US dollar.

This reflects the monetary nature of gold. During periods of significant exchange rate fluctuations, gold can meet investors' hedging and value preservation needs in the foreign exchange market.

Due to the further depreciation of the yen exacerbating imported inflation in Japan, prices in sectors such as food, daily necessities, and transportation have continued to rise, leading to an increase in the cost of living.

Recently, Japan's inflation rate has exceeded that of the United States, with the core CPI rising by 3.1% year-on-year in July, marking the 23rd consecutive month of year-on-year increase.

Jesper Koll, an economist and advisor to the investment fund Japan Catalyst Fund, stated that the main driving force behind Japanese households' purchase of gold is their urgent need for inflation protection after years of lacking a strong motivation to liquidate assets.

Koll added that gold being a non-yen asset is part of the reason for buying gold, but the triggering factor is inflation. As Japan's inflation continues to rise, the demand for gold will also increase.

Tomohiro Ota, a senior economist at Goldman Sachs, said:

"Japanese inflation is at a crossroads."

Ota pointed out that although CPI continues to rise, part of the increase is attributed to temporary government subsidies, while consumer spending has remained stagnant since March. Goldman Sachs predicts that the yen will fall to 155 against the US dollar in the next 6 months.

Eiichiro Kato, General Manager of the Retail Department at Tanaka Precious Metals, stated that gold has become particularly attractive for customers who are concerned about the yen falling to its lowest level in decades and have assets denominated in yen.

Analysts say that Japanese households have accumulated a record-breaking ¥20 trillion in assets after the pandemic, about four times Japan's annual GDP. About half of this is held in the form of cash and deposits, which is closely watched by Japanese securities firms that are trying to convince customers that inflation will continue and that they now need to convert their savings into other financial products.

However, Hideo Kumano, Chief Economist at the Dai-ichi Life Research Institute, warned that the rise in the price of gold in Japan should not be overinterpreted due to the small market size.

Kumano said:

"This could prove to be an exceptional case where even with high inflation, the elderly population in Japan may not change their behavior and start consuming (thus not continuously driving up inflation)."

Some analysts also believe that the future trend of the yen exchange rate and Japanese gold will depend on the Bank of Japan's next monetary policy decision.