Why Ginza’s bullion traders love BoJ these days

Just happens to be a coincidence that the Oilholic is in Tokyo to witness the conclusion of the Bank of Japan’s two-day monetary policy meeting. There were no major surprises, as Governor Haruhiko Kuroda and his board left the country’s benchmark interest rate unchanged at -0.1% in line with market expectations.

The BoJ remains well below its 2% inflation target, headline economic growth is stagnant, exports are flat and well the Oilholic can personally testify that the yen, a preferred carry trade currency, is soaring making life for overseas visitors all that pricier! The pound sterling was lurking around JPY150 level, while the dollar fell below JPY113.50 following the BoJ’s decision which greeted the market on Tuesday.

Most analysts here think further economic stimulus both from the BoJ as well as the Shinzo Abe administration is all but inevitable, with Governor Kuroda noting: “Japan’s economy has continued its moderate recovery trend.”

Moderate, quite simply might not be enough for most Japanese people, hence the weighting in favour of stimulus is rising. However, not everyone is unhappy about the central bank’s policy stance – gold bullion traders are among those with beaming smiles.

According to Tanaka Kikinzoku Kogyo (KK) store in Tokyo’s Ginza district, cited by Bloomberg, the price of gold bars rose to JPY5027 (£31.14, $44.30) per gram on March 11; that’s the highest since July last year.

“Many customers are wagering that it is better to turn their savings to gold as a safe asset rather than deposit money at banks that offer low interest rates,” a spokesperson for the store told the newswire.

The said interest was going strong even at prices exceeding and staying steady above JPY5000 per gram as the Oilholic prepared to leave Tokyo on Friday with cherry blossoms (or “sakura”) having bloomed a few weeks early on the sidewalks and parks not far from the City's historic bullion district and destination for upmarket shopping.

That’s all from Japan folks as the far eastern adventure comes to an end, and a North American one is about to begin. Next stop Vancouver, British Columbia, Canada! Keep reading, keep it ‘crude’!

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© Gaurav Sharma 2016. Photo: Bank of Japan, Tokyo © Gaurav Sharma, March 2016.

Japan’s return to Iranian market ‘complicated’

The Oilholic is back in Tokyo, some 6,000 miles east of London, and is finding Japan Inc. rather content with a crude oil buyers’ market. In fact, if anything, even the relatively higher oil price, has fallen to a third of the level this blogger noted when he was last here (in September 2014).

One outstanding issue – of re-establishing ties with the Iranian market – remains ‘complicated’ to quote analysts and legal professionals in the Japanese capital. Up until 2006, the point of the first wave of stringent UN sanctions on Iran against its nuclear programme, Tokyo enjoyed good ties with Tehran, symbolised first among other things by its stake in the Islamic republic’s Azadegan oilfield. 

However, that was then, and by 2010 matters progressively worsened as the US and European Union moved to impose yet more stringent sanctions on Iran following an escalation of Tehran’s nuclear ambitions, and the West’s wariness of it. 

Subsequently, Japan duly shunned Iran in wake of international sanctions, even if it wasn’t easy for the largest liquefied natural gas importer and third-largest net importer of crude oil and oil products in the world to do so. Following Iran’s return to the international fold and a lifting of international sanctions, unsurprisingly Japan’s government was among the first to follow China in resuming ties with the country’s oil and gas sector, and the wider economy. 

In February, a framework was also put in place under which Tehran would guarantee $10 billion in investment projects financed by the coveted Japan Bank for International Cooperation (JBIC) and insured by Nippon Export and Investment finance. There’s one nagging problem though – the US is yet to fully lift its sanctions on Tehran and that makes Japanese banks, heavily intertwined with American financial system, wary of participating.

Unless commercial banks participate and capital flow mechanisms are established, JBIC cannot finance a project. And in any case an international remittance system needs to work, and major commercial banks, not just Japanese ones, need to resume normal operation before things can get off the ground. Not much of that has happened. 

Experts at law firm Baker & McKenzie’s Tokyo office say the appetite for investment in Iran is definitely there, yet very few Japanese companies have actually signed deals on account of risk associated with falling foul of US sanctions. 

Of course, leading law firms are ever willing to conduct due diligence to protect their clients’ foray into Iran. Furthermore, Washington has lifted sanctions on non-US banks, but nothing is quite so straightforward.

Partial US sanctions require anyone international banks deal with in Iran is not on the US Treasury’s “Specially Designated Nationals” (SDN) roster. The sanctions also cover any company that’s 50% or over 50% owned by an entity or person blocked by the US State Department, even if the company in question is not on the Treasury Department’s SDN roster. 

The only ‘crude’ saving grace is that a stagnant Japanese economy’s demand for oil is at its lowest since 1988, while glut troubled suppliers are queuing up twice over to sell their cargo at discounted prices. Given current oil and gas market permutations, the headache is as much Iran’s to contend with. That’s all from Tokyo for the moment folks. Keep reading, keep it ‘crude’! 

To follow The Oilholic on Twitter click here.
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To email: gaurav.sharma@oilholicssynonymous.com

© Gaurav Sharma 2016. Photo: Tokyo Skyline from Sumida River ferry, Tokyo, Japan © Gaurav Sharma, March 2016.