Standard & Poor's cut in Japan's credit rating could spur more buying of gold from some retail investors in the country, though most will continue to view a recent rally in the precious metal as an opportunity to cash-in.

Analysts and bullion house officials said the ratings cut will not cause an immediate, visible shift in the behaviour of Japanese households, which typically view gold as a tool to make profits from, rather than as a currency alternative or a safe-haven asset.

"It's not realistic to think the S&P move will prompt a change in Japanese perception of gold, namely as a way to earn interest, and not a risk management tool," said Naohiro Niimura, a partner at Tokyo-based research and consulting firm Market Risk Advisory Co.

With Japanese household assets at some $17 trillion, there is low risk of Japan defaulting as the government has a huge pool of domestic deposits to fund its debt issuance. This prevents a sense of urgency growing among investors, analysts said.

But as the country's investor base diversifies and as fiscal reform is not expected to yield anything effective in the near-term, Japanese household selling of gold could slow this year, reducing Japan's net exports of the yellow metal, even if prices rise.

And some retail investors could be tempted to buy.

"A number of retail investors have been increasingly concerned about Japan's fiscal future, and stepping up to buy gold," said Wakako Harada, a senior bullion trader at Mitsubishi Corp.

"Such investors are still a minority and are overwhelmed by the selling power from those looking to cash in," she said. "The downgrade could accelerate buying on Japan's debt woes."

S&P's first cut on Japan's long-term sovereign debt since 2002 helps raise public awareness of the country's lack of consistent and comprehensive fiscal policy to tackle ballooning national long-term debt, which amounts to 181 percent of gross domestic product, or over $10 trillion.

An official at Tanaka Kikinzoku Kogyo, Japan's biggest bullion house, said its gold purchases from households and sales to them were active despite a rallying market in 2010.

"Japanese people generally still lack the notion of holding gold in times of crisis. But the fact that more investors were buying gold last year despite rising prices suggests a change in their behaviour may be taking place," the official said.

Japanese households slowed their sales of gold to bullion dealers last year, resisting the temptation of record prices to hold out for the possibility of greater profits in 2011.

Analysts say the government may use the fiscal woes to increase the country's consumption tax, last raised to 5 percent from 3 percent in 1997, which will likely temporarily boost gold buying as investors seek to make profits from the difference in tax rates.

Key gold futures prices on the Tokyo Commodity Exchange rose to about 1.4 percent and gold priced in yen rallied to session highs after S&P's downgrade.

"The downgrade does help turn investors' attention to Japan's fiscal woes," said Koichiro Kamei, managing director at Tokyo-based researcher Market Strategy Institute Inc. "It could be a trigger for heightened awareness of the issue, but it will take a couple of more years to attract wider attention."

($1=82.88 Yen)


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