The Weak Yen

The Ghost of Christmas Yet to Come

I took a couple of trips this month, to the UK and Dubai, and it really brought home to me how weak the yen is getting.

The UK in particular was a bit of a shock.

As a long-term resident of Japan who likes to travel abroad and might end up moving somewhere else at some point (but not in the immediate future), I am very interested in exchange rates and what they do to my purchasing power.

A strong yen makes it cheaper to travel or move abroad. A weak yen makes it more expensive to travel or move abroad.

The question then becomes: what do I do about this? It depends on whether you think the yen will be stronger or weaker compared to your target currencies in the future. Personally, I don’t know what the yen will do, or how it will perform against the pound, the euro, or the baht (my main currencies of interest).

However, I can do the following mental exercise. I did a variation of this immediately after the earthquake and nuclear accident in Tohoku and was pleased with how it helped me reach a decision.

Basically there are two factors and two decisions:

The yen either gets stronger or it gets weaker. I can then keep my savings in yen or in another currency.

We can then examine the results of each factor and decision:

  1. The yen gets stronger and I keep my savings in yen: win. My strong yen goes further in the future.
  2. The yen gets stronger and I keep my savings in another currency: lose. My comparatively weaker currency does not go as far as my yen would have gone.
  3. The yen gets weaker and I keep my savings in yen: lose. My weaker yen does not go as far in the future.
  4. The yen gets weaker and I keep my savings in another currency: win. My stronger currency goes further, in Japan or abroad.

This seems to be a 50:50, ie either option has the potential to be a good choice.

However, there is another thing to consider. I work in Japan, so my earning potential is in yen. This provides insurance against the strong yen scenario. Even if I make the wrong bet with my savings, I’ll be fine because I am getting more yen each month.

On the other hand, in a weak yen situation, my earning in yen would not help. For this reason, and also because I am not confident that the yen will strengthen over the medium- to long-term, I choose to keep most of my savings and investments in other currencies (mainly US dollars and UK pounds).

I can do this easily using Shinsei Bank’s multi-currency online account and Rakuten Securities’ US share-dealing service.

How about you, what do you think about currencies and exchange rates? Is it a part of your financial planning? Please leave a comment below.

2 Responses

  1. Like you, I have my savings and investments spread over several currencies (JPY, GBP, USD and EUR), so long-term exchange rates don’t really concern me. It’s one Iess thing to worry about 🙂
    Bahts, eh? Sounds like someone might be thinking about retiring in Thailand 😉

    1. Ha ha, not quite retiring yet! My family and I like to go to Thailand to relax, so we tend to go there once or twice a year. It’s getting a bit expensive now though…