Trading Gold in Samurai Land

Asia gold

No doubt that Japan is one of the biggest markets in Asia and the world, if not the biggest in Asia. Moreover, Tokyo Stock Exchange market in Japan is the largest stock exchange in overseas. It is imperative for gold traders and investors to consider studying the Japanese gold market to have a better understanding of the U.S. Quantitative Easing program consequences. It looks like Bernanke is following Abe’s steps in artificially stimulating the economy. One of the largest commodity markets that trade in gold options and futures in Asia is Tokyo Commodity Exchange (TOCOM). As a gold trader, an eye should be kept on this market especially under the current circumstances.

The recent changes in Japan’s monetary policies and economic reformation under Abe Shinzo, the current Japanese Prime Minister, forced the world to watch the Japanese markets without blinking. The Japanese market now is starting to show reactions to the past stimulus. Analysts are debating over the effect of these strategies. So, why not witness these changes first hand while we can

Taking a few steps back, just after the WWII, Japan ignored spending on defense to favor a rapid economic growth. For three decades, Japan followed this plan perfectly and became the world’s second largest economy. But in 1990s, Japan’s economy overheated, and the country entered “the lost decade”. For the next 10 years, Japan suffered from deflation, and the new Japanese government took a bold move to counter it.

A new term was devised for Abe Shinzo’s policy measures to re-awake the mighty samurai from his 10-years nap. Abenomics, this new term, is a set of monetary policy, fiscal policy, and economic growth plans to artificially stimulate the Japanese economy. The Abenomics had a significant effect on the Japanese markets and TOCOM was no exception.

Before the beginning of the lost decade, in 1982 to be precise, Tokyo Gold Exchange was founded in Japan, and in 1984 a merger of major commodity exchange markets in Japan formed what is known now by TOCOM. It introduced trading on electronic platforms in 1991.

As Japan was desperate to recover from the stock market crash in 1990 to 1992, TOCOM spared no expense to attract investors from overseas. The start was at 2003 by facilitating overseas trading and introducing gold options in 2004. In 2009, TOCOM installed the third generation trading platforms to overcome the previous systems deficiency. TOCOM also offered gold traders the opportunity to speculate gold options and gold futures for physical delivery in kilograms from 9:00 am to 3:30 pm then at 4:00 pm to 5:00 pm JST. As a response, major gold producers and traders entered TOCOM, including the Australian Perth Mint and the Royal Canadian Mint.

The Japanese Abenomics experiment should be studied further, especially if the world hasn’t recovered yet from the recession. I couldn’t find a gold market similar or close to New York Mercantile Exchange Market (NYMEX) or Chicago Mercantile Exchange (CME) in capital, volume or trading partners. Also, Japan has similar circumstances akin to these of the U.S.