By Chikafumi Hodo and Osamu Tsukimori
TOKYO (Reuters) - When he woke up to news of a collapse in gold prices, Yujiro Yamashita, 63, made his way to Tokyo's posh Ginza district to buy the precious metal for the first time in 20 years.
Yamashita and other contrarian, individual Japanese investors understand that gold is a volatile investment, but say that buying the precious metal is better than the alternatives.
They cite worries that the new high-octane economic policies of Prime Minister Shinzo Abe, designed to shock the economy out of nearly two decades of deflation, might prompt a collapse in the yen or that the recent rally in stock prices might fizzle.
"Bank deposits generate virtually zero interest," said Yamashita, as he bought two gold coins worth almost $5,000 on Tuesday with some of the money he made from the recent sale of his house.
"Stock prices have jumped like crazy but there are concerns about the risk of war (from North Korea). So I try to buy gold when I can."
Japan's demand for gold, amid a global slump that saw prices tumble around $125 an ounce on Monday, owes partly to the declining value of the yen against the dollar.
Although global gold prices have been in retreat since October and are down about 20 percent this year, after an unbroken 12 years of gains, the weaker Japanese currency drove yen-denominated gold prices to near record highs last week.
As a result of the currency effect, yen-based investors in gold who bought during the worst of the global slump in late 2008 would still be sitting on a 118 percent gain even after Monday's declines, the biggest daily drop ever in dollar terms.
By contrast, a dollar-based investor would have seen gains over the same period of just 46 percent.
Some Japanese also harbor fears that the expansionary monetary and fiscal policies dubbed "Abenomics", coupled with a national debt more than twice as large as annual economic output, could trigger a crisis down the line.
Skeptics about the radical attempt to reflate the economy -- or those simply worried that a slide in the yen that began in anticipation of Abe's election victory last December will continue unabated -- are still buying gold, dealers say.
"Investors in gold are convinced that Japan's fiscal position will get worse," said Wakako Harada, general manager of Japan's top bullion house, Tanaka Kikinzoku Kogyo.
"What I see at our counter is that more people are getting worried about Japan. That's why we are seeing a lot of buying."
Tokyo's stock market has rallied hard in response the latest efforts to stimulate the stagnant economy, with the Nikkei share average rising around 27 percent so far this year.
But Kazuko Ohide, a 64-year old retiree, is one of the household investors who think the effect of Abenomics will not last long.
Ohide used the proceeds of a matured term bank deposit to buy three 24 carat Japanese oval gold coins totaling $3,000 at a gold exhibit and sales event at an established department store in Tokyo's Ginza shopping district last week.
"I still own the shares of the company that I had worked for but I didn't want to hold other company's shares," Ohide said as she showed off her gold coins in a paper bag. "Stocks go down quite a lot. They are very strong now but I'm not sure how long that will last."
Yuichi Ikemizu, branch manager for Standard Bank in Tokyo, said that a record high for gold two years ago had prompted heavy sales by retail investors.
"In contrast this time, we are seeing interest to buy on dips to take exposures to gold," Ikemizu said.
"Investors are using this opportunity to buy gold to diversify beyond bonds, stocks and the yen currency as Japan's fiscal situation could deteriorate."
A week ago, as the yen-denominated price neared a new peak, jewelry stores and gold merchants across Japan saw long lines of mostly older Japanese looking to cash in on unwanted jewelry and other items that they had held for years.
But on Tuesday, buyers outnumbered sellers by a wide margin. At Ginza Tanaka, the headquarters shop of Tanaka Holdings, gold buyers waited for as long as three hours for a chance to complete a transaction.
Nearby at Ginza SGC, a gold merchant, buyers had taken about 6 kg (13 lbs) of gold home by early afternoon on Tuesday. In one case, a 60-year-old man, who asked not to be identified, walked out of the store with 500 grams of gold for about 2.2 million yen ($22,500).
At a special gold exhibit organized earlier this month at the Matsuzakaya department store, staff said that an 18-carat gold Buddhist bell used in a household altar to honor deceased relatives was selling well. It was priced at 4 million yen.
"You could buy it as a family treasure as many of our customers do," one salesman said. "But if your house burned down and you lost everything, gold is fire resistant and you would still have it." ($1 = 97.9600 Japanese yen)
(Additional reporting by Emi Emoto; Writing by Kevin Krolicki; Editing by Aaron Sheldrick and Alex Richardson)