TOKYO, July 31 (Reuters) - The delicate sheets of gold used to decorate Kyoto's Golden Pavilion Temple, first built in Japan's ancient capital over 600 years ago, have found a new application for modern Japanese women -- as facials.

Apart from temples, "kinpaku" gold leaf is also used to decorate lacquerware and other crafts but its primary application has been on religious items, which have been hit by sinking sales.

Annual production of kinpaku in Kanazawa, on the Japan Sea coast where about 98 percent of Japan's gold leaf is produced, has fallen to around 2.5 billion yen (US$20.98 million), industry sources say.

Akira Noguchi, at Kanazawa's kinpaku cooperative, said output has fallen to about one-fifth of what it was during Japan's financial bubble of the 1980's when gold was a favoured metal.

"Some 70-80 percent of kinpaku is used to make Buddhist religious items ... and that's not doing so well," Noguchi said.

Not happy to see an old tradition die, Hakuichi Co. Ltd., established in 1975, a few years ago began to use the gold leaf in lotions and cream as well as in facials to try to stimulate new consumption.

"I wanted to develop new ways to apply the skill that we had," Hakuichi President Kuniko Asano said.

She said that while gold's benefits have not been clinically tested, it has traditionally been thought to improve circulation as well as have disinfectant qualities.

GOLD MASK

Whatever its skin enhancing properties, those who have had the treatment -- which uses gold leaf that is almost pure gold and can even be consumed -- says it makes them feel good.

Fifty-year-old Kaoru Takahashi, who recently tried Hakuichi's gold facial for the first time, said that her skin felt softer and more supple after the leaf had been massaged into her skin.

She had a picture of herself taken with her own mobile phone as she reclined, wrapped in a soft beige bathrobe, her hair in a turban and her face a mask of shimmering gold.

The close-up would be sent to her friends, who had expressed an interest in the massage, which is usually included in a 60-90 minute session costing 15,750-21,000 yen.

"You hardly feel it, it's so light," said Takahashi, a mother of three children.

Although similar gold leaf can be found in other parts of the world, Japan's kinpaku is considered among the finest.

A piece of gold about the size of a small coin is beaten to a thickness of about 0.0001 mm, until it is the size of a tatami straw mat (around 91 cm by 1,82 cm).

Asano said she is aiming for eventual annual sales of about 300 million yen from the company's cosmetics division.

Total annual sales at Hakuichi, which makes the kinpaku as well as applies it in various products, are about 1.6 billion yen.

Prospects are not so bright for many in the struggling industry, however. Her husband's family kinpaku business, which stuck to tradition, has gone bankrupt.

No industry figures were available for gold consumption, but Asano said that Hakuichi used about 50-100 kg a year.

Although Asano declined to say how much gold the company typically kept in stock in the company's safe, she said: "We usually have enough to allow us to remain in business."

The Golden Pavilion Temple's glow was restored when 20 kg of gold kinpaku was used in its renovation in 1986-87.

The current building was reconstructed in 1955, five years after a young Buddhist monk set fire to the original structure, an incident depicted in a novel by Yukio Mishima.

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