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With price inflation running rampant in Japan, Japanese households are rushing to buy gold.

The sudden surge in demand, along with the devaluation of the yen, has driven the price of gold to record highs in yen terms.

The yen fell sharply against the dollar this year as decades of easy money finally caught up with the Bank of Japan. The Japanese currency recently rose above ¥146.5 against the dollar

The central bank managed to print yen for decades, but as it always does, monetary inflation has now reared its ugly head in the form of price inflation.

According to the Financial Times, the sudden rush into gold and the rise in retail gold prices in Japan “was part of a rapid shift in household attitudes to risk as years of deflation have given way to rising consumer prices.”

While the yen doesn’t enjoy the dollar’s reserve currency status, it has historically been considered a safe haven asset. That allowed the Japanese government and central bank to get away with inflationary policies for a lot longer than it might have otherwise. Nevertheless, when you keep creating currency out of thin air, it will eventually lead to price inflation. (Americans should take note.)

According to Japan Catalyst Fund economist Jesper Koll, an urgent search for inflation protection after years will little incentive to move out of cash is driving the flight to gold in Japan.

The fact that gold is a non-yen asset helps, but the trigger is inflation.”

Eiichiro Kato serves as the GM for Tanaka Kikinzoku’s Precious Metals Retail Department. He told the Financial Times that gold had become particularly attractive to customers concerned about the yen’s fall to multi-decade lows and their assets being denominated in yen. He went on to explain that global central bank gold buying, economic news from the US,  and Fed monetary policy were driving the decision to buy gold in yen with the hope that the dollar-denominated gold price would remain “high and stable.

We do not see many factors that would cause the dollar-denominated price to fall significantly, and we think that the yen-denominated price could rise further if the yen continues to weaken.”

Gold demand recently drove the piece above the ¥10,000 per gram level for the first time.

ZeroHedge said the weak yen will only get weaker.

Occasional desperation intervention aside – as long as there was no signal from the Bank of Japan that it is ready to tighten its ultra-loose policy which won’t happen for a long time (and when it does, it will spark a collapse in the JGB bond market forcing the trapped BOJ to immediately reverse once again) demand for gold in Japan will only keep rising.”

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