As we reported yesterday, the world’s most clueless prime minister, Japan’s Shinzo Abe, has suddenly found himself in a “no way out” situation, with inflation for most items suddenly soaring (courtesy of exported deflation slamming Europe), without a matched increase in wages as reflected in the “surprising” tumble in household spending, which dropped 2.5% on expectations of a 0.1% increase in the month ahead of Japan’s infamous sales tax hike. How does one explain this unwillingness by the public to buy worthless trinkets and non-durable goods and services ahead of an imminent price surge? Simple – while the government may have no options now, the same can not be said of its citizens who have lived next to China long enough to know precisely what to do when faced with runaway inflation, and enjoying the added benefit of a collapsing curency courtesy of Kuroda’s “wealth effect.” That something is to buy gold, of course, lots of it.
According to the FT, “Tanaka Kikinzoku Jewelry, a precious metals specialist, reported that sales of gold ingots across seven of its shops are up more than 500% this month. At the company’s flagship store in Ginza on Thursday, people queued for up to three hours to buy 500g bars worth about Y2.3m ($22,500). March has been the busiest month in Tanaka’s 120-year history.”
Of course, while the Japanese consumers know what is the best defense against runaway inflation and purchasing power destruction, the government also knows that just like in India, where massive gold imports to satisfy local demand so skewed the current account deficit that India spent most of 2013 imposing gold capital controls, it simply needs to make gold purchases impossible in order to redirect spending into more Keynes-approved products and services.
However, for now Japan is happy just to crush its population’s meager disposable income with soaring energy prices. Which also means the locals can allocate their personal capital in the most efficient way: one which discounts a very unpleasant future.