Could this be a good time to buy Japanese investments such as Japanese real estate? With a weak yen, your US dollars, Euros (€), etc. will now buy several percent more here than they did just a month or so ago. The yen is considered a “safe haven” currency. How long will this period of cheap yen last?
The dollar/yen exchange rate was even weaker on Thursday, the 20th. It rose to 112.23 yen to the dollar, the cheapest price since April last year. Now we are taking a short break near the annual high of 112.40 yen in 2019. The closing price has also remained at the 112 yen level, and there is still room to go up. In the last six months, on average, it has only moved about 0.50 yen a day, but it has risen 2.40 yen in just two days. It looks like frustration has accumulated.
Concerns about a recession in Japan are causing the yen to weaken. “Buy low, sell high!” they say. With the yen around ¥112 to the dollar, US$100,000 will buy over ¥11.13 million worth of Japanese real estate, for example. However, if the yen were stronger, about ¥100 to the dollar, then the purchasing power of that US$100,000 would be only ¥10 million. It’s a ¥1.13 million difference. It is also important to note that the dollar/yen movement has a different pattern from the previous stock depreciation (risk-off) that equaled yen appreciation.
Japan’s GDP in the October-December period (gross domestic product) fell significantly by 6.3% per annum over the previous quarter. The introduction of the consumption tax has been analyzed as a major reason. GDP in the January-March quarter is likely to worsen due to a sharp decrease in foreign tourists, a series of events due to the novel coronavirus (COVID-19), and going out and having banquets before the cherry blossom season. Hiding the information about the novel coronavirus (COVID-19), and worrying about the effects of it on the economy, has affected public sentiment adversely. This is a not-so-good pattern for both risk management and economic measures, however, it represents a great opportunity for investors with their assets currently outside of Japan. The Bank of Japan, which does not have any plans for stimulus, does not plan to help at this time.
So what about the United States? Employment markets are strongly positive on the outlook for the US economy, according to the minutes of the FOMC meeting released this week. The NY Fed Empire State Manufacturing Index has been at its highest level since May last year, and the Philly Fed Manufacturing Activity Index has been at its highest level in three years. Of course, infections may spread in the United States in the future. However, the novel coronavirus/COVID-19 situation in Japan may be more serious now. In other words, the US is currently “high” and Japan is “low;” it might be better to invest in Japan now and wait to invest in the US until an economic downturn there.
In addition to the yen depreciation, the markets are also depreciating with the Euro and the Australian dollar. The Australian dollar hit a 10-year low against the US dollar. The US dollar is valued very highly right now, making American real estate and other investments very expensive for potential investors.