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Soaring yen threatens disaster for most, but profits for some

37 Comments

Prime Minister Naoto Kan's "economic tone deafness," demonstrated by his failure to take countermeasures against the steady appreciation of the Japanese yen, may result in "hellish unemployment" for Japan, warns evening tabloid Nikkan Gendai (Aug 19).

Last week, Aoyama Gakuin University professor Eisuke Sakakibara, a former bureaucrat at the Ministry of Finance, remarked there was a "strong possibility" that by around late September, the yen would surpass its previous postwar peak of 79.75 to one U.S. dollar, posted in April 1995.

Sakakibara also warned that the world economy was facing the possibility of a full-blown global depression from this year through 2011.

"Considering adjustments for inflation, the rate of 79.75 yen to one dollar today would be equivalent to about 60 yen to the dollar," business reporter Yoshiki Kobayashi is quoted as saying. "Various countries are in agreement that the current rate of around 85 yen to the dollar is too low."

In addition to making Japan's exports more costly, further appreciation of the yen may worsen unemployment. The Ministry of Internal Affairs and Communications announced on Tuesday that in the April-June quarter, 3.49 million workers in Japan were categorized as completely unemployed. Those who had been without work for one year or longer rose by 210,000 to reach 1.18 million -- the second-highest number ever.

Exchange rate differentials, particularly for labor costs, are making it increasingly expedient for Japan's manufacturers to shift more production offshore.

"Around 1995, companies began moving production of general-purpose components overseas," says Teikoku Data Bank's Takakazu Nakamori. "But now we're seeing a shift in production of core components to foreign plants. Nissan Motor Co has announced it would produce its popular March compact in Thailand. Lower labor costs in Thailand coupled with the higher purchasing power of the Japanese yen at home have generated a 'March shock.' If companies eventually transfer their key functions overseas, then it won't just be factory workers who lose their jobs, but elite staff as well."

Shukan Shincho (Aug 28) has its own take on this "hyper yen-daka," muttering that the government's non-interventionist position toward foreign exchange has led, as professor Kazutaka Kirishima of Josai University puts it -- dusting off a political term from 1940 here -- to Japan's financial "encirclement" by the U.S., Europe and China.

Fumiyuki Nakanishi, strategist at SMBC Friend Securities, tells the magazine that the yen upswing is just at the beginning of a 40- to 45-week cycle and that appreciation will probably continue until the U.S. unemployment rate, currently at 9.5%, declines to the 8% level.

Kaoru Yokoyama, a financial journalist, nevertheless points out that the US dollar at 80 yen is a "bargain" and likely to prove a good investment in the long run. Economist Takashi Kadokura, meanwhile, sees potential in gold, which is still enjoying high demand, particularly among affluent Chinese, rising by as much as 1.5-fold over the next two to three years.

But one doesn't need an astute grasp of forex or commodities trading to profit from the high yen. An unnamed journalist noted that a woman's Burberry trench coat can be purchased from the UK's net-a-porter.com site for 796 pounds (roughly 107,000 yen). On Japan's Rakuten Ichiba shopping site, the same coat was selling for 183,000 yen -- realizing a handy profit even after outlays for shipping and import duty.

Similar bargains, such as antique Japanese film cameras in high demand by local collectors, can be found at U.S. auction sites like eBay or Yahoo! at astonishingly low prices.

Finding the best deals is often a matter of timing. Prices for overseas package tours, for example, take three months to reflect the latest exchange rates, so December through February will be the best time to plan a trip to the UK or France, journalist Hiroko Hagiwara is predicting.

© Japan Today

©2019 GPlusMedia Inc.

37 Comments
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I hope the yen will drop to 70.

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I'm heading back to England for a holiday and to a friends wedding next summer. I personally hope the yen remains high for at least another year ;-)

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Why hope tokyochris? Just but your UK pounds now.

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You don't see Toyota worried yet because they can still make a profit at 59yen to the dollar, but the rest of the Japanese, including me, will be living on a tighter budget next year due to another round of pay cuts. So much for me for a silver lining.

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timtak: not if you use a credit card...

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I wire money home every month to the U.S. I'm loving this. I say, go down to sixty!

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Toyota makes a profit still because there are millions of people in Japan who are still willing to buy dysfunctional cars that are not thoroughly checked in the proper way. If the yen goes to 59, I would love to see that and I would love to see what Japanese politicians would do to fix the problem.

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If the yen goes to 59, I would love to see that

I would love to see that too. Then I would exchange all of my savings in Japanese yen into dollars and start a new life in Hawaii.

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From the prices of imported books sold here, the exchange rate would appear to be around 160 yen to 1 US dollar. Even when the yen soars, the prices of foreign goods do not necessarily become cheaper. A jar of Skippy peanut butter, for instance, goes for about the same now as when the yen was 125 to the dollar. Merchants will set prices according to what they think consumers are willing to pay. There's little advantage for consumers.

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Merchants will set prices according to what they think consumers are willing to pay. There's little advantage for consumers.

Little more complicated than that. Peanut butter made in America is bought with dollars, and price agreed to per contract between distributors.

Essentially that's what futures contracts are for. To protect against swings in currency, or what have you.

The yen would have to stay where it is for quite a while to see any budge in peanut butter or book prices.

There's also supply and demand to factor in. There isn't much demand for peanut butter and English books, so in order for the stores supply to meet with demand, the price needs to be adjusted accordingly.

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I remember when the yen was at 146円 to the dollar about 12 years ago or so. One of the main reasons I left - no profit sending money home. That was one of the 20 lost years, and Japan didn't recover, improve, or stimulate its economy. I say turn about is fair play. Now, I'm making tons more than I could ever imagine on the exchange.

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alladin..I hope the yen will drop to 70.

I hope the yen will surge-back- to 110.

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I remember when the yen was at 360...about a long time ago !

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being a Brit, the rate of 136-40yen for the pound is great. I save using shinsei bank. when the rate goes back to 160-180yen, I'll be yen. In the meantime, I love buying pounds. I remember 245yen to the pound (about 1998-99). But I'm glad my job isn't affected by the exchange rate. How long will this last?

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Actually, most economists agree that the yen is at the correct level. Rather than trying to intervene with the currency - which is ultimately hopeless, Japan needs to try to be less export dependent.

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I would love to see that too. Then I would exchange all of my savings in Japanese yen into dollars and start a new life in Hawaii.

Trust me, if we reach a point where there is that much disparity between the dollar and yen, then things have gone so bad that I can guarantee that you will not want to be anywhere in the US.

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Geeeeeeeeeeeeee, I guess I have been helping the Japanese economy, but not the US's, but they told me to butt out.

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If you read between the lines of the article, you will see that there is not a whole lot of "profit" for anyone. Consumers can buy things more cheaply, maybe..., but in terms of "profit", there aren't any. "PROFITS FOR SOME" is the headline hook, but if you read the article, you were teased.

The dumb example of a Burberry coat shows that if you want to "save" 800 dollars on a stupid coat by spending 1000 dollars, then you have "profited". Isn't that cute?

And anyone who thinks the yen is going "lower" to 70 are going to hold on to your yen and wait, right? Or are you going to put it in pounds and dollars now and watch them sink further? It is a crapshoot.

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The dumb example of a Burberry coat shows that if you want to "save" 800 dollars on a stupid coat by spending 1000 dollars, then you have "profited". Isn't that cute?

Huh?? It looked to me like it said you could buy it from the UK, resell it in Japan and turn a handy profit.

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For expats living in Japan, a strong Yen is a great position to be in. You're wealthy as all get out. Downside of course is that you're in a higher tax bracket with the IRS, provided you are filing.

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Why hope tokyochris? Just but your UK pounds now.

Already am - it's destroying my student loan one month at a time ^_^

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It is funny to me that people are criticizing Kan for his, "failure to take countermeasures against the steady appreciation of the Japanese yen" but what is it that he is supposed to do? The only way to control the currency market, and the thing the the government has done for decades, is to have the BOJ buy/sell Yen at the rate that they want. Unfortunately, they don't have any money to do that anymore. Weren't we just talking about cutting budgets and raising taxes a couple of weeks ago?

The only way to get the massive amount of money needed to control the currency market is to issue more debt, something that Kan doesn't want to do, and frankly the public doesn't want either.

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"Huh?? It looked to me like it said you could buy it from the UK, resell it in Japan and turn a handy profit."

I think "sell it in Japan" is the tricky part of that scheme, seeing as how any old Japanese consumer earning a "profit" by spending money could do the same.

"The only way to control the currency market, and the thing the the government has done for decades, is to have the BOJ buy/sell Yen at the rate that they want"

Gee. Do you really think that is all they can do? How much faith are you putting in that "only" part of the statement? Well, see, you contradict yourself:

"The only way to get the massive amount of money needed to control the currency market is"

Kan's world is not made up of any ONLYs at all, but his brain is. He simply refuses to see the alternatives he does have and relies on the advice of terribly unimaginative people.

People know where I stand on this. If the world came up to me with a credit card, and I had a nation of people who needed jobs, education, health, and environment, and generally a better future, well, I would say "What's the interest rate?" If they said, "1%, FIXED." I would say, "What's the limit?" and if they said, "No limit." I would say, "Hey. Give me that card and make me PM for life." I could bring the yen lower, get some growth going, and solve some problems all at the same time.

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kp123@

Downside of course is that you're in a higher tax bracket with the IRS, provided you are filing

Makes no difference as this higher income will be offset by the higher amt of taxes you paid here, as figured in your form 1116. Of course if you are breaking US law by not filing, then none of this discussion is necessary anyway.

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Makes no difference as this higher income will be offset by the higher amt of taxes you paid here, as figured in your form 1116.

incorrect. Even if your Yen salary is the same as the previous year, when converted to USD, its higher this year. The % of tax you pay in Japan doesn't change but you now may be in a higher US tax bracket.

Here's another issue; Americans who have pre-tax housing benefits in Japan is treated as taxable income in the US. If the housing benefit is Yen 10 mio a year, you might have to pay 35% of the converted USD amount to the IRS. If the conversion is $100k, you pay 35k but at 117k (85 yen rate) you pay 40k to the IRS.

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porter@

The % of tax you pay in Japan doesn't change but you now may be in a higher US tax bracket.

You certainly do not understand form 1112: it has nothing to do with the % of tax you pay in Japan, it is about the amt of tax you pay in Japan and tthat amt is figured by the exchange rate and can therefore be deducted.

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Ok, I am not an accountant and the IRS laws are super complicating. My second point on pre-tax housing benefit recepients will take a hit though.

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porter, fair enough on the housing hit, I suppose, because I don't think about it nor care about it. Those in Japan without the housing allowance (that is no doubt a majority) can deduct rent paid from their "earned income in Japan"/thus a lower US tax bill (comes in handy if one makes a tad over the limit and unnecessary to factor in if one's salary here falls below the limit, so doesn't matter). I, a home owner/purchaser, on the other hand, cannot take this "rent" deduction, but I can and do write off the property tax and property insurance I pay in Japan for property I am buying. However, I feel no sorrow for an expat who stays here and makes a decent salary coupled with the "housing allowance" you speak of. Hey, if what you suggest is correct, then basically their "free" rent is still free minus a US tax bill. Still pretty good in anyone's books, since most expats here must pay rent or mortgage payment.

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But what is driving the stronger yen? There's been no positive economic news out of Japan of late.

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It's not the Yen that's getting too strong, it's the dollar that's getting shot by our massive "stimulus programs" and crack dealer aka The FED monetizing our debt and killing the value of the dollar.

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Investors continue to take money out of mutual funds, stocks, and riskier assets. This shouldn't be surprising, given that the equities bubble has burst and deflationary presures continue in the economy. Investors withdrew a staggering $33 billion from U.S. stock market mutual funds in the first seven months of this year. Now many are choosing investments they deem safer, like bonds. It may take many years before it is clear whether this becomes a long-term shift in psychology. For now, though, mixed economic data is presenting a picture of an economy that is recovering feebly from recession.

For a lot of ordinary people, the economic recovery does not feel real. People are not going to rush toward the stock market on a sustained basis until they feel more confident of employment growth and the sustainability of the economic recovery. That may take quite a long time, since we are not going to have an economic recovery anytime soon.

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Why not manipulate the Yen like China does their currency? Or has that been done before and flopped. I'm not too privy to this stuff, but looks like China is doing something right.

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I only buy necessities at the supermarket and alcohol at bars

I have seen no decreases at all in the prices of the imported items I buy. One would think by now that there would have been a slight drop by now in say the price of a Califonian bottle of wine in the supermarket but it is still selling at exactly what it id a year or six months ago So someone is making big profits and not passing anything on to consumers

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This is about teh Yen, yet the leaders of the free world have to pay tax even when residing abroad. How free is that? The Yen will fall, but when?

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So when is the price of imported cheese going to come down to reasonable levels?

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So when is the price of imported cheese going to come down to reasonable levels?

When you do it yourself. I usually bring a large cardboard box with me every trip for this purpose.

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I wish this article was never released. I've been cashing in on international sales for nearly six months now. Buy junk on eBay internationally and sell it on Yahoo auctions Japan. Sports gear, fishing surfing, hiking, etc. are all winners. You can also avoid the import tax with many vendors by getting them to invoice you separately and marking the box as gifts.

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