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Home > Media Reiews > News Review Last Updated: 14:52 03/09/2007
News Review #21: April 11, 2002

ANALYSIS-Japanese gold demand no flash in the pan

Reviewed By Hitoshi URABE

"ANALYSIS-Japanese gold demand no flash in the pan"

What is a "good" investment? It differs, of course, from investor to investor. But what if it is an individual, where the term investment becomes synonymous to savings? The most significant criterion in this case would naturally be safety, with the least risk of its value getting deteriorated.

Beginning on April 1, the maximum amount of deposit insured for a depositor at a bank generally has become limited to ten million yen. Many people who have savings of more than that amount had been seeking for a good alternative place to put the money, rather than having the fund sitting vulnerably at a bank.

Some opted to go into stock markets, but not many. As people knew that it had been treating novice investors unjustly for quite a while, which was due to lack of awareness on the part of the regulators and selfish conduct by the players in the market. Other financial markets could not attract these people either, for a number of reasons but all in one way or another was considered too costly or cumbersome for ordinary people to utilize them, if not flatly inaccessible.

Some rented safe-deposit boxes, to store cash there. Others exchanged money for other valuables, such as jewels and precious metals, like gold bars and nuggets. The article cited above reports demand for gold in Japan has soared for this purpose.

Such behavior of the people does not make it seem like it is happening in a developed country. Rather, it sounds like a story in an underdeveloped society where people do not trust their government or its monetary policy or their market.

To review the basics, it is the fundamental function of a monetary system, to facilitate flow of money, letting it be circulated and reinvested, benefiting from credit creation function of banks along the way, to capitalize creation of wealth. Although it is legitimate and necessary to limit the amount of deposit insurance, it is unfortunate that healthy and respectable money market has not developed in Japan to absorb the funds seeking investment alternatives. The result is a hindered money flow. Funds that were destined to be invested productively would not make it to the goal. It is yet another ingredient for a pitiful outcome, further deflation and slowdown of economy.

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