February 2, 2005
By Miho Yoshikawa
Reuters
TOKYO - Japan's gold imports soared in 2004 as low domestic output made it necessary to buy the precious metal from abroad to meet brisk demand from the country's industrial sector and private investors, industry officials say.
The strength of Japan's gold imports in 2005 is likely to be shaped by the robustness of private investor demand, which will be closely linked to the yen's strength, some officials say. Japan imported about 73.84 tonnes of gold in 2004, a hefty 67.7 rise from the year before, preliminary data from the Finance Ministry showed last week.
"Demand was brisk ... but a decline in gold production among domestic mining firms meant that imports of gold increased to make up for the shortage," said Osamu Ikeda, general manager at Tanaka Kikinzoku Kogyo K.K.'s precious metals division.
Japan's production of copper fell last year due to a shortage in raw material, and this also cut output of gold, a by-product.
A landslide at the Grasberg mine in Indonesia in December 2003 disrupted shipments of copper's raw material last year, but high-grade production at Asia's largest mine, owned by Freeport-McMoRan Copper & Gold Inc., has since restarted.
Japan's gold production in 2004 amounted to about 137 tonnes, down some 18 percent from the previous year's 161 tonnes, believed to be an all-time high, the Japan Mining Industry Association said.
At Tanaka Kikinzoku, Japan's top bullion house, industrial demand for gold rose 15 percent in 2004, followed by jewellery demand, which increased by 7 percent, Ikeda said.
Investor demand for gold was up some 1.7 percent.
Tanaka Kikinzoku does not release figures in volumes.
Itsuo Toshima, the World Gold Council's regional director for Japan and Korea, said demand for gold from the industrial sector and investors probably rose 30 percent respectively last year, although final figures were not yet available.
Industrial demand typically accounts for the largest share of Japan's consumption of gold, followed by investor demand.
Jewellery demand, which has mostly been on a long-term slide since the bubble years of the late 1980s, follows in third place.
YEN STRENGTH
In 2005, Japan's industrial demand for gold, used mainly in the semiconductor and high-tech sectors, is expected to be flat to firm, industry officials say.
Japanese investor demand is expected to remain firm this year as the government in April will impose a cap of 10 million yen on state guarantees for ordinary bank deposits, industry officials say.
Private investors began actively to buy gold before the Japanese government introduced a guarantee cap on term deposits in April 2002, as many turned to the precious metal as a means to diversify their portfolio.
Since then gold has become a common investment tool, and officials say it is no longer rare to see regular purchases of 2-3 kg, roughly 24-42 million yen at the current market price.
The WGC's Toshima said the yen's strength against the U.S. dollar would be a major factor determining how much gold buying takes place this year.
A stronger yen has the effect of reducing yen-based gold prices.
"We are likely to see some concentrated buying of gold should the Japanese currency strengthen and breach 100 yen (against the dollar)," he said.
The Japanese currency has been strong against the dollar this year, hitting a five-year high of 101.67 last month.
The printing of new banknotes late last year may also have prompted some investors hoarding money at home to buy gold for fear that the old bills might become worthless, Toshima said.
"We've heard of cases where banknotes that were damp, or even slightly soiled with dirt, were brought to bullion houses," he said.
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