RetireJapan

Is there a more accurate way of determining the intrinsic value of ¥100?

When exchanging currency people are often under the impression that ¥100 is equal to $1 USD. Besides going out and comparing the prices of a bottle of milk in the US and Japan at the grocery store, is there a more empirical way to figure this out?

https://www.statista.com/statistics/426 ... y-country/
https://www.numbeo.com/cost-of-living/r ... ountry.jsp

adamu wrote: ↑Sun Jan 29, 2023 4:36 am https://www.economist.com/big-mac-index

So using the GDP adjusted calculation:
JPY=X 129.8 and the yen is 38.2% undervalued:

38.2% of 129.8 = 49.469
129.8-49.469 = 80.331
So the adjusted exchange rate would $1USD= ¥80.331?

Did I completely muddle that?

For Purchasing Power, there is the Big Mac Index mentioned by Adamu.

There are a couple of sources that are more broad:

Purchasing Power Parity Data

The Institute of International Monetary Affairs
https://www.iima.or.jp/
https://www.iima.or.jp/files/items/3098 ... pdata.xlsx

The OECD
https://data.oecd.org/conversion/purcha ... es-ppp.htm

https://en.wikipedia.org/wiki/Purchasing_power_parity

https://www.imf.org/en/Publications/fan ... Parity-PPP

Gulliver wrote: ↑Sun Jan 29, 2023 5:50 am

adamu wrote: ↑Sun Jan 29, 2023 4:36 am https://www.economist.com/big-mac-index

So using the GDP adjusted calculation:
JPY=X 129.8 and the yen is 38.2% undervalued:

38.2% of 129.8 = 49.469
129.8-49.469 = 80.331
So the adjusted exchange rate would $1USD= ¥80.331?

Did I completely muddle that?

You don't need to go via GBP, you can select USD and JPY directly.

https://www.economist.com/big-mac-index wrote: The Japanese yen is 41.2% undervalued against the US dollar
January 2023
A Big Mac costs ¥410 in Japan and US$5.36 in the United States. The implied exchange rate is 76.49. The difference between this and the actual exchange rate, 130.10, suggests the Japanese yen is 41.2% undervalued

But I think the real answer to your question is that there is no intrinsic value, because it's a fiat currency.

Tkydon wrote: ↑Sun Jan 29, 2023 6:46 am For Purchasing Power, there is the Big Mac Index mentioned by Adamu.

There are a couple of sources that are more broad:

Purchasing Power Parity Data

The Institute of International Monetary Affairs
https://www.iima.or.jp/
https://www.iima.or.jp/files/items/3098 ... pdata.xlsx

The OECD
https://data.oecd.org/conversion/purcha ... es-ppp.htm

https://en.wikipedia.org/wiki/Purchasing_power_parity

https://www.imf.org/en/Publications/fan ... Parity-PPP

So the OECD shrinks the disparity to 7% (in 2021). This definitely makes PPP a less important factor when considering currency exchange (at least for me).

adamu wrote: ↑Sun Jan 29, 2023 7:42 am But I think the real answer to your question is that there is no intrinsic value, because it's a fiat currency.

Oh semantics, eh? Why i oughta..

Gulliver wrote: ↑Sun Jan 29, 2023 7:52 am

Tkydon wrote: ↑Sun Jan 29, 2023 6:46 am For Purchasing Power, there is the Big Mac Index mentioned by Adamu.

There are a couple of sources that are more broad:

Purchasing Power Parity Data

The Institute of International Monetary Affairs
https://www.iima.or.jp/
https://www.iima.or.jp/files/items/3098 ... pdata.xlsx

The OECD
https://data.oecd.org/conversion/purcha ... es-ppp.htm

https://en.wikipedia.org/wiki/Purchasing_power_parity

https://www.imf.org/en/Publications/fan ... Parity-PPP

So the OECD shrinks the disparity to 7% (in 2021). This definitely makes PPP a less important factor when considering currency exchange (at least for me).

Currency Exchange

For the current Exchange Rates, you can use the SmartPhone App 'Xe'

http://www.murc-kawasesouba.jp/fx/past_3month.php

For Intrinsic Value, remember that the Exchange Rate of the Yen moved from 76 Yen to the US$1 in 2009 to 115 Yen to the US$1 at the beginning of 2022, to 150 Yen to the US$1 in October 2022, and back to 130 today, beginning of 2023.

So all Japanese prices halved in dollar terms between 2009 and 2022.

Tkydon wrote: ↑Sun Jan 29, 2023 10:15 am So all Japanese prices halved in dollar terms between 2009 and 2022.

Not Big Macs