The Weakening Yen

I work in Japan and I get paid in Japanese yen. When I relocated here a few years ago, the USD-JPY rate was over 100. The yen began to strengthen in 2008, reaching record highs in 2011. During this period, I was greatly benefiting from the exchange rate for two reasons:

  1. Our savings were in USD. While the yen was strong, I was getting more U.S. dollars for the amount I was able to put aside. For instance, while the USD-JPY rate was in the 76 levels in Q4 of 2011, the amount of 1,000,000 JPY could be exchanged for around 13,150 USD. Today, the USD-JPY rate hit 99. So if I had tried to exchange 1,000,000 JPY today, I would have gotten only 10,100 USD. That’s a difference of over 3,000 USD!
  2. Japan inflation rate was negative. While the yen strengthened, inflation also dropped and remained negative for quite a while. While we have been in Japan, the cost of goods have not changed much, which is a relief since Tokyo has always been one of the most expensive cities in the world and has topped the list again according to an article by CNN Money in February 2013.
A ten-year chart of the USD-JPY exchange rate taken from Google Finance.

A ten-year chart of the USD-JPY exchange rate taken from Google Finance.

 

The exchange rate can really affect how much my husband and I can save up during a year.¬†Expectations are for the USD-JPY rate to hit 110. If this is the case, then we will need to aggressively save more to be able to meet our goals! If we can’t meet our budget, then we will need to figure out a way to get more out of our investments to make up for the shortfall in savings. It looks to be a tough year ahead of us.

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