Japan’s gold market is undergoing a radical restructuring which has the potential to catapult the Asian nation back to its former place among the world leaders in gold investment, according to Bruce Ikemizu, Chief Director of the Japan Bullion Market Association.
Ikemizu noted that before China became a major player in the global gold market, Japan was one of the world’s largest gold importers. “During the 1980s and 1990s, my primary role in physical gold trading at a trading house involved importing physical gold from Australia, Switzerland, London, South Africa and other sources,” he said. “However, the dynamics of this business gradually shifted after the introduction of a consumption tax, and more dramatically after the bursting of Japan’s economic bubble after the 2000s, following which the country became a net exporter of the gold, marking a 180-degree turn in our business operations.”
The consumption tax was introduced at 3% in 1989, rising to 5% in 1997 and 8% in 2014 before topping out at 10% in 2019. “What does this have to do with gold investment? Well, when you purchase gold in Japan, you have to pay this tax, but you will get it back when you sell it as the tax should be borne by the person who consumes it,” he said. “In theory, this consumption tax should not have a negative effect on gold investment. Instead, it has its advantages, as you can now receive 10% over the selling price, regardless of whether you paid 0%, 3%, 5%, 8% or 10% tax when you bought it.”
Ikemizu said that the consumption tax did not work as designed, and instead had massive unintended consequences on the Japanese gold market. “In contrast to the tax treatment of gold in foreign countries, such as Hong Kong, where there is no value-added tax on gold purchases, bringing gold from Hong Kong to Japan without customs declaration and selling it here would allow you to add the consumption tax on top of the price, now at 10%,” he noted. “A 10% profit on gold incentivised extensive smuggling by both individuals and large-scale criminal organisations. Long liquidation of gold at the higher yen price and smuggling were the two primary reasons behind Japan’s gold exports, despite having only one small gold mine that produces just several tonnes annually.”