Gold Price Analysis: Japan's Fiscal Policy and Fed Policy Shifts

Now let me provide you with a comprehensive analysis based on all the data gathered:

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The convergence of Japan’s anticipated loose fiscal policy and potential Federal Reserve policy shifts creates a

. This analysis examines the transmission mechanisms, historical patterns, and price trajectory scenarios for Q1 2024 and beyond.

According to the latest market data [0]:

Metric	Value
Gold Spot Price	$5,022/oz (record highs)
GLD ETF	$455.46 (+23.5% over 90 days)
USD/JPY	156.89 (+1.94%)
VIX Index	17.76 (elevated volatility)

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Japan’s electoral outcomes and fiscal policy trajectory exert significant influence on gold prices through multiple interconnected channels:

1. Fiscal Stimulus Expectations
   : Prime Minister Sanae Takaichi’s ruling LDP secured a decisive victory in snap elections on February 8, 2026, reinforcing expectations of expanded stimulus measures and cost-of-living relief [1][2]. This loose fiscal stance creates currency depreciation pressure.

2. Yen Weakness Dynamics
   : The Japanese yen has weakened substantially, with markets projecting potential levels of 180 per dollar—a multi-decade low not seen since 1986 [1][2]. This yen weakness operates through several pathways:
   • Currency Hedge Demand
     : Japanese investors increase gold purchases as a hedge against yen depreciation
   • Arbitrage Opportunities
     : Price differentials between yen-denominated and dollar-denominated gold create trading opportunities
   • Relative Value
     : Gold becomes relatively cheaper for Japanese buyers when priced in appreciating dollars

3. BOJ Policy Normalization
   : The Bank of Japan has progressively abandoned its ultra-loose monetary policy, raising rates from -0.1% in early 2024 to 0.75% currently [3]. This normalization paradoxically supports gold by:
   • Creating fiscal-monetary policy divergence
   • Signaling acceptance of higher inflation expectations
   • Potentially exacerbating JGB market volatility [4]

The Japanese government bond (JGB) market has experienced significant selloffs, with trading conditions described as “chaotic” [4]. This reflects growing concerns about fiscal credibility and debt sustainability, which:

• Increases safe-haven demand for gold
• Signals potential systemic risks
• Encourages diversification away from traditional fixed-income assets

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The Federal Reserve’s monetary policy stance has evolved significantly [3]:

Period	Action	Impact on Gold
September 2024	Began rate cuts	Bullish
Late 2024	Three consecutive 0.25% cuts	Bullish
2025	Rates held steady	Supportive
Current	Fed independence concerns	Mixed

Federal Reserve policy affects gold through several critical channels:

1. Opportunity Cost
   : Lower interest rates reduce the carrying cost of holding non-yielding assets like gold, making it relatively more attractive compared to interest-bearing securities.

2. Dollar Dynamics
   : Fed accommodation typically weakens the US dollar, which:
   • Makes gold cheaper for foreign currency holders
   • Reduces gold’s dollar-denominated price in other currencies
   • Triggers momentum-based buying from global investors

3. Real Yield Compression
   : When nominal rates fall faster than inflation expectations, real yields decline—historically correlated with gold price appreciation [5].

4. Forward Guidance Effect
   : Market expectations of future Fed policy create anticipatory price movements in gold, with Q1 2024 characterized by significant Fed pivot expectations that contributed to gold’s 20% quarterly gain [5].

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The combination of Japanese and American policy shifts creates a

on gold demand:

┌─────────────────────────────────────────────────────────────────┐
│  Japan Loose Fiscal + BOJ Normalization                         │
│         ↓                                                       │
│  Yen Depreciation (USD/JPY: 155-180)                            │
│         ↓                                                       │
│  ↑ Japanese Gold Demand ←→ ↑ Global Gold Demand                 │
│         ↓                                                       │
│  Fed Rate Cuts (2024-25)                                        │
│         ↓                                                       │
│  USD Weakness + Lower Real Yields                               │
│         ↓                                                       │
│  CENTRAL BANK BUYING (1,037 tonnes in 2024)                     │
│         ↓                                                       │
│  STRUCTURAL GOLD PRICE SUPPORT                                  │
│  Target Range: $4,500 - $6,000/oz                              │
└─────────────────────────────────────────────────────────────────┘

Central bank purchases represent a fundamental shift in gold’s structural demand profile:

• 2024 purchases
  : 1,037 tonnes (25% increase YoY) [6]
• Largest annual purchase
  on record
• Diversification motive
  : Central banks reducing dollar exposure
• De-dollarization trend
  : Accelerating global shift away from US dollar assets

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Metric	Q1 2024 Value	Significance
Gold Average	~$2,045/oz	Pre-breakout level
Quarterly Gain	+20%	Among steepest quarterly gains
March 18, 2024	$3,000/oz	First ever breach
Primary Drivers	Fed pivot, geopolitical tensions	Set foundation for current rally

Gold has appreciated dramatically from Q1 2024 levels [5]:

Period	Price	Change from Prior
Q1 2024 Average	~$2,045	-
Q1 2024 Close	~$2,200	+20%
2025 Average	~$4,000	+80%
Feb 2026	$5,022	+145% from Q1 2024

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Based on the policy interaction analysis, the following scenarios emerge [7]:

Scenario	Gold Price	Fed Policy	Yen Outlook	Probability
Bull Case	$5,500-6,000	Aggressive cuts	Very weak (170+)	25%
Base Case	$4,500-4,800	Gradual cuts	Weak (155-165)	55%
Bear Case	$3,800-4,200	Rates on hold	Stable (145-155)	20%
Current (Feb 2026)	$5,022	Steady	Weak (157+)	-

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• Fed hawkish pivot
  : Resumption of rate hikes would increase opportunity cost
• Yen intervention
  : BoJ/Finance Ministry currency intervention could reverse yen weakness
• Jewelry demand destruction
  : High prices may reduce demand in price-sensitive Asian markets
• Geopolitical resolution
  : De-escalation of tensions could reduce safe-haven demand
• Technical correction
  : Extended rally may trigger profit-taking

• Additional Fed rate cuts
• Formal announcement of Japan fiscal stimulus
• Central bank buying acceleration
• Escalation of geopolitical tensions
• US debt ceiling concerns

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Based on the structural analysis, the following allocation framework is recommended:

• Gold allocation
  : 5-15% of diversified portfolios
• Entry strategy
  : Dollar-cost averaging recommended given volatility
• Vehicle selection
  : Physical gold, GLD ETF, or mining equities depending on risk tolerance

Indicator	Critical Levels	Significance
USD/JPY	150, 160, 170	Yen weakness thresholds
Fed dot plot	Rate cut expectations	Forward guidance
US Treasury yields	Real yield levels	Opportunity cost
Central bank purchases	Monthly totals	Structural demand
VIX index	Fear gauge	Risk sentiment

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The combination of

and creates a compound bullish environment for gold prices. The transmission mechanisms operate through:

1. Currency Channels
   : Yen weakness increases Japanese and Asian gold demand
2. Interest Rate Channels
   : Lower US rates reduce gold’s opportunity cost
3. Safe-Haven Channels
   : Fiscal uncertainty drives institutional and retail demand
4. Structural Channels
   : Central bank de-dollarization provides fundamental support

For Q1 2024 specifically, the alignment of Fed pivot expectations with Japanese fiscal stimulus expectations created a near-optimal bullish setup. The continuation of these themes has driven gold to record highs above $5,000/oz.

:

• Fiscal discipline does not return to Japan
• Fed maintains accommodative stance
• Central banks continue net purchases
• Geopolitical risks remain elevated

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[0] Ginlix API Data - Market indices, GLD and USD/JPY price data

[1] FXStreet - “USD JPY gathers strength to near 157.50 as Takaichi’s party wins snap elections” (https://www.fxstreet.com/news/usd-jpy-gathers-strength-to-near-15750-as-takaichis-party-wins-snap-elections-202602082305)

[2] Yahoo Finance - “Analysis: A crisis of confidence in the yen looms over Japan” (https://ca.finance.yahoo.com/news/analysis-crisis-confidence-yen-looms-090531537.html)

[3] BNP Paribas - “Japanese yields rise; equities power on; a new Fed chair” (https://www.bnpparibas-am.com/en/portfolio-perspectives/monthly-market-views-japanese-yields-rise-equities-power-on-a-new-fed-chair/)

[4] WSWS - “Gold price spiral and Japanese bond market selloff signal deepening financial turmoil” (https://www.wsws.org/en/articles/2026/01/28/kyrs-j28.html)

[5] Trading Economics - Gold price historical data and trends (https://tradingeconomics.com/commodity/gold)

[6] Discovery Alert - “Gold Price Rise: Why Precious Metal Hits Record Highs” (https://discoveryalert.com.au/gold-price-surge-2025-central-bank-inflation/)

[7] Reuters - “Analysts ramp up gold forecasts as global uncertainties mount” (https://www.reuters.com/business/finance/analysts-ramp-up-gold-forecasts-global-uncertainties-mount-2026-02-04/)

[8] Seeking Alpha - Gold ETF flows and market commentary (https://seekingalpha.com/)