Sunday 12 November 2023

Yen at all time-low against Singapore (111 Yen to 1 SGD), What to Do?

For avid traveller to Japan, one of the best things to happen this week is the depreciation of Yen to SGD such that it is now 1SGD to 111 Yen

Why Did It Happen

This is due to Bank of Japan's insistence to keep its interest rates at 0% with long term 10 year bond yields only allowed to go up to 1%. Globally, interest rates are at all time high, so Japanese money is leaving Japan and investing elsewhere. There is an economic movement within Japan where Japanese housewives dabble in foreign currency by putting their wealth in foreign currency deposits which are earning more interest overseas than in Japan bank accounts. 

Google "Mrs Watanabe Foreign Currency" and you will learn that Japanese households are holding a huge amount of their assets in Foreign Currency and not in JPY, reason being foreign currencies earn a higher interest now and the constant depreciation of JPY means its better to hold foreign currency.

My view

As a Singaporean, I have an addition item to thank for and that is Singapore uses currency appreciation to protect us from inflation. The result, Japanese Yen has depreciated 34% against us in 5 years.

I do an travel to Japan and my view is that it is difficult for Japanese Yen to constantly depreciate and Sing Dollar to constantly appreciate. In all likelihood, it is darn difficult for the Bank of Japan to forever be at monetary accomodative policy stance. Eventually, they have to follow suit and I do think the JPY will appreciate back to 1 SGD to 90 Yen levels (that is still at all time highs)

Mrs Watanabe Effect

Economist are aware of this and are factoring that should bank of Japan change stance, a large inflow of money will return to Japan. There are economic literature on this. Should money start to return to Japan, the Yen will appreciate and investors should not doubt the magnitude of capital returning to Japan. Japanese housewives control the finances of the household and I am sure the amount of capital inflow will be huge.

Keep Yen For Travels, Sticking My Neck Out

1 SGD to 111 Yen is very tempting. As mentioned, I feel there is a possibility of yen appreciating and the magnitude will be large should the reverse trend occur. The question is when. 

For me, the exchange of SGD to Yen is in the pipleines and it will be done way before my next Japan holiday. One thoughts is how to maximise the returns of my idle Yen then; putting in fixed deposits but it is difficult. Japan Share prices has already experienced a run up so I do not want to be holding to assets which may face a decline in share price while the currency appreciates. Net-net becomes zero to me. 

I may change a few thousand in Sing Dollar to Yen and hold it my revolut account while earning 0% interest. Maybe revolut can start offer Yen Fixed Deposits, trust me if that happens, I will be changing my sing dollars to yen.

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