The dollar jumped as high as 144.50 yen on Monday morning in Tokyo, as the yen came under pressure after prime minister Ryutaro Hashimoto's Liberal Democratic Party (LDP) took only 44 seats of the 126 up for grabs in the Upper House election. Hashimoto said on Monday he would resign to take responsibility for his party's defeat. "If the yen's fall against the dollar continues amid political turmoil, gold sales by investors will probably pick up as the weak yen will boost yen-based gold prices," an official at a Japanese bullion house said.

"If political woes delay the implementation of Japan's economic stimulative policies, it will be negative for gold demand," he added.

Traders said Japanese gold demand in the first half of this yearwas expected to have fallen by more than 20 per cent on a year-on-year basis amid the recession.Gold demand in jewellery is deteriorating as bankruptcies at Japanese jewellers continue at a high pace, traders said.

According to Teikoku Databank, a private credit research company, 67 jewellers went bankrupt in Japan with cumulative debt of 29.1 billion yen in the first five months of this year.

This compares with 65 bankruptcies with 71.5 billion yen debt in the same period last year.

Gold demand in the electronics and other industries is weakening as manufacturers cut output to cope with lower sales. Demand in the investment sector is also sluggish, with profit-taking overwhelming buying due to the yen's downtrend against the dollar. "I expect Japanese gold demand in the first half of this year to plunge by as much as 25 percent on a year-on-year basis," another bullion house official said.

"I don't expect demand to recover in the second half, as the economic measures the Japanese government has sofar proposed appear to be ineffective in improving consumption and the economy overall," he said.

In 1997, Japanese gold demand in the jewellery sector fell by 12.2 per cent from the previous year to about 65 tonnes, while demand in the industrial sector dipped by 2.7 per cent to around 110 tonnes, the official said.Japanese gold demand in the investment sector in 1997jumped 12.9 per cent year-on-year to about 70 tonnes, as a string of failures of Japanese Financial institutions in November and December stimulated gold investment, he added.But such "flight-to-quality" buying of gold ebbed this year amid a lack of further collapses of major Japanese banks and securities firms, he said. Sales of gold investment products through bullion house retail channels in the first half of 1998 plunged by 28.3 per cent compared with the same period last year, he said.

"Last month, purchases of gold investment products were overwhelmed by sales, as investors took the yen's depreciation against the dollar as a chancefor profit-taking," he said. The dollar rose to an eight-year high of 146.75 yen on June 16, against the backdrop of persisting concerns over the Japanese economy. Itsuo Toshima, area manager for Japan of gold industry body World Gold Council (WGC), said Japan's "Big Bang" Financial deregulation launched in April was a positive incentive for gold investment, as a concept of asset diversification was filtering to wealthy Japanese who traditionally preferred safe Financial products such as bank deposits.

Toshima also said gold's role as a hedge against Financial crisis was being revalued, and that gold investment was likely to increase again if the government's efforts to clean up Japan's bad-loan mess stimulated failures of troubled banks.