Japan seems reluctant to boost its gold holdings as a way of diversifying its massive external reserves, but Tokyo may have to reconsider its stance in the future, with its reserves heavily overweight in US Treasuries.
US Treasuries are seen as among the world's most liquid and safest sovereign securities, but financial and commodities analysts say it may be dangerous to stick to one brand, especially the bond of a country with towering twin deficits.
"We have to say that concentrating in one thing (US Treasuries) is not healthy and if the issue of diversification is raised then increasing gold should be considered," said Tatsuo Kageyama, a market analyst at Kanetsu Asset Management.
"At present Japan is not considering increasing gold, but debate about diversification should re-emerge over time and it may come to a point where Japan has to think about it seriously."
Japan's latest reserves figures showed a record $826.577 billion at the end of March. The reserves have nearly quadrupled in the last five years. Japan has been the world's biggest holder of external reserves since October 1999, having nearly twice as much as number two China, which held about $426.4 billion as of November.
The Ministry of Finance data showed Japan's gold holdings at just 1.3 percent of the total reserves, with 24.60 million ounces or 765.2 tonnes - the lowest among industrialised nations with the exception of Canada and Britain.
On Thursday, Finance Minister Sadakazu Tanigaki said he did not think it was necessary for Japan to boost the amount of gold it held in its external reserves.
"I'm aware of arguments about the need to diversify our foreign exchange reserves away from US assets, but I don't agree with calls for us to hold more gold. Some diversification may be necessary, but I don't think Japan needs to hold more gold," he said in a speech to foreign correspondents in Tokyo.
Hiroshi Watanabe, head of the MOF's international bureau, separately told reporters that it was not appropriate for Japan to discuss gold purchases without a review of the framework on global currency policy.
In the early 1970s many industrialised nations agreed to reduce gold holdings and the framework for that agreement still existed, Watanabe said.
Japan last increased its gold reserves in May 2001, when it raised the holdings to 24.6 million ounces from 24.55 million ounces.
Japan does not disclose details of the breakdown of currencies in the reserves, but its holdings of foreign securities and deposits, about 98 percent of the total, are widely believed to be held in US dollars.
"From the standpoint of hedging, Japan should be thinking about increasing its gold reserves," Kanetsu's Kageyama said.
Analysts also said that adding gold to its reserves could strengthen the status of the yen.
"In recent years, China has increased its reserves of gold... while Japan has kept gold reserves steady," said Akio Shibata, chief economist at Marubeni Research Institute.
"China is doing that to raise the credibility of the yuan. In Japan, the reserves held in dollars are simply too big."
The United States - the world's largest gold holder - maintains nearly 60 percent, or 8,135.4 tonnes, of its total reserves in the yellow metal.
But others say that holding gold also contains risk.
"There is an argument for diversification, but gold fluctuates and it also has risks, just like US Treasuries," said Sayuri Kawamura, a senior economist at Japan Research Institute.
"Gold is important, but it may not be efficient enough when Japan wants to use the reserves in times of crisis. Cashing in gold is also more costly. So I don't think it's a wise idea to hold gold in large volumes," Kawamura said.
Japan's reluctance to bolster its gold reserves also comes as some European countries move to reduce their holdings of the yellow metal.
Central banks in France and Germany have shown interest in selling gold to fund scientific research.
Germany and France are the world's second and fourth largest holders of gold, respectively, and their interest follows a deal last month that raises the limit on gold sales by central banks in Europe to 500 tonnes a year.