Why gold in 2026? Is gold still a strategic asset for Japanese investors?

Is gold still a strategic asset? 

In 2025 gold experienced its strongest annual performance since 1979 (Chart 1). Heightened geopolitical risks, escalating global trade uncertainties, and growing demand for portfolio diversification drove sustained buying from both central banks and investors, supporting gold’s historic performance. 

Gold has carried this momentum into 2026. Further spikes in geopolitical and trade risks, among other factors, have provided support for gold. 

That said, recent spikes in gold price volatility have prompted a key concern for investors: is gold still a strategic safe-haven asset?

Our analysis shows that with various challenges facing Japanese investors in 2026, such as sticky inflationary pressure, rising bond-equity correlation and geopolitical uncertainties, gold remains a strategic asset and improves local portfolio performance.

Japan’s 2026 macro scene

Inflationary pressure, higher rates

To answer this question, we believe it is vital to first assess Japanese investors’ portfolio needs. 

Prime Minister Takaichi’s historical election win may have multiple implications for Japan’s economy and local assets.¹ Her expansionary fiscal policy stance, such as suspending food consumption tax, is likely to ease household cost of living pressure and push down headline inflation in the near term. But upside risks to longer-term inflation remain. 

With economic activity in Japan improving, and likely to be further boosted by expansionary fiscal policies, the country’s output gap could widen into positive territory, in line with the projection from the Bank of Japan (BoJ).² And when the gap turns positive, it typically implies that demand is running ahead of supply capacity and labour constraints, putting upward pressure on inflation (Chart 2). 

Meanwhile, the labour shortage may further fuel price pressures. Declining fertility rates, rising longevity, and a shrinking working‑age population have tightened labour supply. These factors, combined with an improving output gap, have pushed the Japanese labour force participation rate to a record high. 

Takaichi’s tougher stance on immigration does little to alleviate these constraints. Taken together, limited labour supply and a widening output gap are likely to sustain wage growth, contributing to higher inflation over the longer run. (Chart 3). 

This brings the BoJ into focus. Despite its expansionary fiscal policy, the bank is expected to continue monetary policy normalisation. While this may appear at odds with the Prime Minister’s stance, incremental tightening is necessary to counter yen weakness and rising inflationary pressures – both of which could be exacerbated by fiscal easing.

Moreover, the macro conditions for the BoJ to continue hiking, as we have noted before, are now firmly in place. The wage-price spiral remains intact while the output gap keeps growing. Both point to sticky inflationary pressure that may cost the BoJ dearly if they stay behind the curve. 

Rising bond-equity correlation as inflationary pressure climbs

The above analysis indicates three potential trends for Japanese investors to watch:

• Expansionary fiscal policies ahead
• Higher inflationary pressure
• Rising interest rates.

Meanwhile, global uncertainties cannot be overlooked: 

• Rising geopolitical risks involving Japan
• Resurging global trade uncertainties
• The de-globalisation trend, which structurally pushes up costs.

As we noted previously, global bond-equity correlation has remained at elevated levels amid sticky inflationary pressure. Positive inflation surprises often adversely impact both assets, which is particularly true in the current environment: 

• Inflation is unlikely to ease
• Growth outlook is positive but external shocks abound

Local interest rates are expected to rise further.

Geopolitical risks aren’t fading soon

Japanese investors may need to factor in several considerations when constructing their portfolios. Not least, historical data tells us that geopolitical risk spikes tend to cluster. Each spike averages three weeks in duration but the GPR index level tends to stay high for some weeks afterwards: when such risks occur, they come not in single spies, but in battalions (Chart 4).

Our assessment of the domestic and global conditions indicates that Japanese investors, who typically put their assets into domestic and global equities and bonds, may want to consider:

• Hedge against inflation
• Assets with low/negative correlation to equities.
• Cushion geopolitical shocks, the “unknown unknown”

Does gold still offer Japanese investors a strategic edge?

Let us return to our original question: is gold still a safe-haven asset now that it moves at wider ranges than it has done historically?

We believe the recent rise in gold price volatility has been driven by frequent spikes in geopolitical risk, alongside rapidly shifting expectations around inflation and major central banks’ policy paths so far in 2026. Historical analysis shows that gold’s volatility is mean‑reverting, suggesting that the current elevated volatility is likely to subside over time.

And we believe gold remains highly relevant as a strategic asset in Japanese investors’ portfolios due principally to these attributes: 

Gold, an efficient contributor to growth 

Investors have long considered gold a beneficial asset during periods of uncertainty. Yet, historically, gold has generated long-term positive returns in both good and bad times, outperforming many other major asset classes over various horizons (Chart 5).

Gold’s diverse sources of demand give it not only a particular resilience, but also the potential to deliver solid returns in various market conditions. Gold is, on the one hand, often used as an investment to protect and enhance wealth over the long term (counter-cyclical demand), but on the other hand it is also a consumer good, via jewellery and technology demand (pro-cyclical demand).

Low correlation with risk assets

Gold’s correlation with local equities has been unique based on historical patterns. It decreases to nearly zero as stocks go down yet investors won’t miss the party when equities rally: gold’s correlation with equities rises at such times (Chart 6). 

Gold has long been treated as a safe-haven asset to which investors flock during market stress, underpinning its resilience during risk-off periods. And because gold is a global asset, driven by various global factors, its correlation with stocks in any one country – dependent on that country’s economic conditions and policies – has been muted. 

Most rallies in local stocks are driven by a weaker yen or easier global/local liquidity conditions, among other factors. Gold in yen often benefits from these conditions, resulting in a higher correlation with local equities during an upswing. 

An effective hedge against geopolitical shocks 

Gold is widely regarded as an effective hedge against geopolitical risk. During periods of heightened geopolitical tension investors are drawn to gold’s lack of counterparty risk, its global liquidity, and its independence from any single government or currency. 

Historical data shows that gold tends to rise when geopolitical risk spikes, indicating a distinct “geopolitical premium” (Chart 7).

The ideal hedge against inflation

Gold has also long been considered a hedge against inflation. This is not only true globally, but historical data confirms gold’s inflation-hedging ability in Japan. During periods when inflation rises above 2% – the BoJ’s target since 2013 – gold in yen averages a stunning nominal return of 23% annually – equivalent to an annual average real return of 16% (Chart 8). Over the long term, therefore, gold has not just preserved capital but helped it to grow. 

Data also shows that gold has the capacity to do well in periods of deflation – a factor that has bothered Japanese investors for decades. Such periods are characterised by slow growth, low – in Japan’s case, negative – interest rates, reduced consumption and investment, and financial stress, all of which tend to foster gold investment demand.

Gold, the strategic asset in Japanese portfolios 

We have looked back at historical data as well as recent records to show that gold has been a provider of stable returns – particularly on a risk-adjusted basis – an asset that has unique correlations with equities, a cushion for geopolitical shocks, and a hedge against inflation. So, is gold relevant in Japanese portfolios? 

To assess gold’s role for Japanese investors, we simulated a hypothetical Japanese corporate pension portfolio based on historical data.³ And we analysed this hypothetical portfolio performance over various time horizons, without gold, and with a 5% gold allocation taken proportionally from other investments. Results show that a 5% allocation to gold is able to help the portfolio improve its return and lower risks (Table 1). 

Our results also show that the hypothetical Japanese corporate pension portfolio would have achieved higher returns and lower risks if 2.5%, 5%, 7.5% or 10% had been allocated to gold over the past 20 years (Chart 9).

Conclusion 

Japan has entered a markedly different macro environment. The widening positive output gap, persistent labour shortage issues, and expansionary fiscal policies are generating stickier inflationary pressures than have been present in the past. And there is a real possibility that the BoJ may continue its gradual policy normalisation. Externally, geopolitical risks are unlikely to ease any time soon, brewing unpredictable market shocks. All these changes, including elevated equity‑bond correlations, frequent unexpected shocks, and perhaps concerns around government debt amid the aggressive fiscal expansion, have weakened the traditional portfolio construction for Japanese investors. 

Despite its recent volatility, our analysis shows that gold remains a strategically relevant asset for Japanese portfolios. Historically, gold in yen has delivered stable long‑term returns, strong risk‑adjusted performance, and low or asymmetric correlation with equities. Crucially, gold has also acted as an effective hedge against inflation. Portfolio simulations further indicate that even a modest allocation to gold can improve the performance of a hypothetical Japanese corporate pension portfolio over various time horizons.

Footnotes

¹See: PM Takaichi vows policy shifts to make Japan strong and prosperous - The Mainichi, 20 February 2026.

²See: Highlights of the Outlook for Economic Activity and Prices (January 2026)

³See: Pension Fund Association