Focus on the things you control
We’ve been dealing with a weakening yen for the last couple of years. And accelerating price inflation recently.
But we don’t have control over either of these things, nor can we accurately predict them.
An expensive lunch
I met a friend for lunch yesterday. We went to a Chinese restaurant and had teishoku. Then we went for a coffee. Then I bought some croissants from a bakery to take home.
Each of those things cost about 50% more than I expected them to.
Lunch was about 1500 yen each (my mental baseline for a Chinese lunch set meal is 700-800 yen). The coffees were 650 yen each -we went to a nice kissa-like place with different blends and beans. My mental baseline for that kind of coffee is about 400 yen. Finally, the (very fancy) croissants were 400 yen each! I would expect to pay around 200-250 for something like that.
Now, this isn’t the end of the world. I know plenty of places where I could still pay the same prices as before. It’s just that the number of those places is shrinking, and the baseline seems to be rising.
It’s okay to raise prices in Japan now
Until a couple of years ago, it was almost unheard of to raise prices in Japan. I still remember the umaibo scandal when they raised the price from ten to twelve yen. It made international news if I remember correctly 😉
But that taboo has been well and truly broken in Japan, and now price increases seem to be everywhere. For many people, their income is not going up at the same rate, so their spending power is decreasing.
The weak yen is having a similar effect. Not only is it a big factor in the price increases, but buying things in other currencies while being paid in yen is pretty miserable.
Travelling abroad is eye-wateringly expensive these days compared to just a couple of years ago, and investing in US or world stocks is giving people pause.
Would it not be better just to wait a bit until the exchange rate goes back to normal?
There is no ‘normal’
Unfortunately it is not that simple. No one knows what is going to happen with the exchange rate. This could be the new normal, with the yen at around 150 to the USD. Or it could weaken further. Or go back to 100 to the dollar.
We just don’t know, and can’t make accurate predictions.
According to the chart below, the yen seems reasonably priced at the moment:
Things could get a lot worse.
What can we do when faced with a weak yen and rising prices?
Well, I’m not a fan of complaining about things. Reality is what it is. If you can’t change something, best to acknowledge it and move on.
Prices are going up. We can’t control that but we can control where we have lunch or shop, and what we buy. If your usual place gets a bit expensive, find a cheaper option.
My family usually took trips to Thailand for beach holidays, diving, etc.
This year we checked prices and found that it was cheaper overall to travel to Okinawa instead. So that is what we did and we had a great time. Not the same, but a very decent alternative.
In terms of investing, I am sticking to my plan. I buy the same index fund every month that I have been buying. It is more expensive now in yen terms but that can’t be helped. If the price rises or falls in the future I will continue buying it and take advantage of dollar cost averaging.
The Serenity Prayer
Worrying about the situation and second guessing yourself is not helpful and just consumes your energy. The sooner your train yourself to avoid that the happier and more productive your life will be.
I am not at all religious, but I am a huge fan of the serenity prayer.
We can change our actions.
We can buy less, buy different things, change our lifestyle.
We can increase our income by getting a raise, changing jobs, or doing side work.
If money becomes tight we can save a bit less, or invest a bit less. This is fine. As long as you are doing something you’re improving your life.
The key for me is to understand how things are, decide what I can do about it, do it and move on. No second thoughts, no regrets.
How about you? Have you been impacted by rising prices? Have you changed how you shop or invest? Do you think the current situation is the new normal or will things go back to how they were?
What is the index fund you buy?
I basically just buy the eMaxis Slim All-country world stock fund now. Last year I simplified my portfolio significantly: https://www.retirejapan.com/blog/my-investment-allocation-is-all-wrong/
There seems to be a lot of news about how the interest rate differential and the yield on 10-year U.S. Treasurys are the main factors behind the yen’s depreciation against the U.S. dollar. However, I wonder if Japan’s debt level and long-term demographic outlook will condemn the yen to remain weak against the U.S. dollar. (At the same time, the U.S. government has also taken on a lot of debt…)
All good points
If there is a recession next year as some predict I wonder if unwinding of the yen carry trade would boost the yen… well temporarily anyway
I feel like Ben’s whole message is “stop trying to predict the future, and instead rely on average returns on diverse portfolios coupled with long-term trends”.
I think if you’re planning to hold off in order to wait for better times, well, you have to accept that they may never come.
I think the one thing you can do is try to hold some non-JPY denominated assets. This is especially true if you want to travel internationally or may leave Japan at some stage. You can’t change the path of the yen but you can hedge the FX risk.
It wasn’t so long ago that the yen was 250 to the pound sterling. And then went to 117 / 118. People who came to Japan in the last ten years think the yen is very weak against the pound now, too, but it’s actually pretty average. Through all those swings I haven’t altered my behaviour, and doubt I will now with the current weakness v the dollar because, as you said, we don’t know which way things will go. I guess if you are paid in foreign currency or travel abroad a lot it would be very annoying, but if you are here and paid in yen, not much point stressing about it.