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The Honolulu Advertiser
Posted on: Monday, February 11, 2002

Japanese investing in gold

By Yuri Kageyama
Associated Press

TOKYO — With their banks battling a recession and bad loans, some Japanese, worried about the imminent end of a blanket guarantee on their savings, are sinking their money into something that looks more solid — gold.

A salesclerk at Tanaka Kikinzoku Jewelry in Tokyo displays one-kilogram gold bars for sale. More Japanese have been investing their savings in gold recently.

Associated Press

Sales of $10,000 gold bars at Tanaka Kikinzoku Jewelry in downtown Tokyo have more than doubled in the past several months, company officials said Thursday.

They refused to give specific figures, but said some customers have bought as many as 40 of the 2.2-pound bars.

"The end of the government insurance on savings is a big factor," jewelry company spokesman Masakazu Tanaka said. "People are looking for a secure place to put their money."

The trend in Japan is contributing to a worldwide increase in the demand for gold. Gold futures broke above $300 an ounce for the first time in two years Wednesday on the New York Mercantile Exchange, before easing later in the day, and traded above $300 in London Thursday.

The Japanese government has offered an unlimited guarantee on bank deposits since shortly after the 1997-98 financial crisis toppled major banks and set off fears of a nationwide run on banks.

But come April, it will only insure some types of bank deposits, totaling about $4 trillion nationwide, up to only $75,000. As a result, larger accounts have been shrinking gradually, finance officials say.

Most industrialized nations have a ceiling on government guarantees on deposits. U.S. accounts are protected up to $100,000.

Japan has slid into its third recession in a decade, and its banks are struggling. Although the banks have been trying to clean up bad debts for years, loans gone sour have grown by 12 percent over the last six months, to $269 billion.

There's no panicked run for the money yet, but dozens of smaller lenders have collapsed in recent months, sparking concerns that savers may flee smaller regional institutions and trust their money only with a few major banks.

The large Bank of Tokyo-Mitsubishi, for example, says its individual savings deposits rose by $11 billion in the last year, to $155 billion.

Yuji Inoue, spokesman for the National Central Society of Credit Cooperatives, said one reason more people haven't withdrawn their cash is that they are unaware that the guarantees will soon be limited.

"Many people don't know about the change yet," Inoue said. "Who knows what will happen once it kicks in?"

But Sanae Koshida, a 46-year-old housewife, said she isn't worried because she doesn't have $75,000.

"If I had a million dollars, maybe I'd spend a lot of time worrying about what to do," she said. "Thank God I don't."

Some who do — and some who fear the banks they keep their money in could collapse — are buying gold.

An alternative is postal savings, a government-run bank where all deposits will be insured. But there has been no rush to move money to postal savings, which have held steady at about $1.8 trillion.

The stock market has failed to prove attractive. Tokyo shares have fallen to 18-year lows recently, and stock trading is traditionally frowned upon as akin to gambling.

"In Japan right now, paper assets are under attack, the Nikkei is getting slammed, and there is little to no faith in domestic policy," analyst Andrew Delano of IDEAglobal said Wednesday in New York.

Some regional banks are working together to stave off drain to bigger rivals. They are talking to account holders to reassure them.

The end of the blanket insurance had been planned for a year ago but was postponed because of fears of confusion.

For a year, the change will affect only fixed-term deposits whose interest rates are higher than regular savings accounts'. But Japanese interest rates have been close to zero for months, part of an effort to breathe life into the struggling economy. The ceiling will be expanded to regular deposits in April 2003.