Why is the Japanese Yen worth so little when everything in Japan is so expensive?
Monday, January 27, 2014
, Posted by Ryanita at 12:59 PM
Andrea
I've asked tons of people, even an economist and no one knows the answer.. the Yen is far less than the American dollar yet everything is so much more expensive in comparison to things we buy here.. how is that possible?
Answer
I think that depends on what you mean by 'worth so little'.
1) The tiny exchange rate.
Today's JPY/USD exchange rate was 0.00961 and that may have prompted you to say "that's worth so little", but what a lot of people outside of Japan don't realize is that the Yen is the smallest denomination of currency used in retail, in other words the Japanese Yen is the Japanese penny. Other countries which use the dollar such as the U.S., Canada, Australia etc. use Dollars AND Cents. Dollars and cents are the same currency but refer to different denominations of the same money. Another way of thinking about it is the Japanese only buy things in 'Japanese pennies', so at the current exchange rate 1 Japanese penny (yen) is slightly less than 1 U.S. penny. From that perspective I don't think prices in Japan are that outrageous. When I was in Tokyo last month a can of Coke was 120 yen (US$1.15) and a BigMac was 280 yen (US$2.69) and it actually looked like the photo on the menu!
2) Low to virtually non-existent interest rates.
This is for you ForEx junkies but as you may know Japan has been on a deflationary fall for about a decade and the Central Bank of Japan has kept interest rates as near zero as possible making the Yen less attractive, but with a plumetting US dollar and Japanese prime real estate ripe for the picking the Yen has seen a sharp spike recently. It may be a good time to hold some Yen on the short.
I think that depends on what you mean by 'worth so little'.
1) The tiny exchange rate.
Today's JPY/USD exchange rate was 0.00961 and that may have prompted you to say "that's worth so little", but what a lot of people outside of Japan don't realize is that the Yen is the smallest denomination of currency used in retail, in other words the Japanese Yen is the Japanese penny. Other countries which use the dollar such as the U.S., Canada, Australia etc. use Dollars AND Cents. Dollars and cents are the same currency but refer to different denominations of the same money. Another way of thinking about it is the Japanese only buy things in 'Japanese pennies', so at the current exchange rate 1 Japanese penny (yen) is slightly less than 1 U.S. penny. From that perspective I don't think prices in Japan are that outrageous. When I was in Tokyo last month a can of Coke was 120 yen (US$1.15) and a BigMac was 280 yen (US$2.69) and it actually looked like the photo on the menu!
2) Low to virtually non-existent interest rates.
This is for you ForEx junkies but as you may know Japan has been on a deflationary fall for about a decade and the Central Bank of Japan has kept interest rates as near zero as possible making the Yen less attractive, but with a plumetting US dollar and Japanese prime real estate ripe for the picking the Yen has seen a sharp spike recently. It may be a good time to hold some Yen on the short.
What is a foreign exchange rate? How do foreign exchange rates affect imports and exports?
Pedro S
Pick a country and tell me about the exchange rate of the U.S. dollar versus that country. Has the exchange rate changed recently? Why?
Answer
In finance, the exchange rates (also known as the foreign-exchange rate, forex rate or FX rate) between two currencies specifies how much one currency is worth in terms of the other. For example an exchange rate of 123 Japanese yen (JPY, ¥) to the United States dollar (USD, $) means that JPY 123 is worth the same as USD 1. The foreign exchange market is one of the largest markets in the world. By some estimates, about 2 trillion USD worth of currency changes hands every day.
In finance, the exchange rates (also known as the foreign-exchange rate, forex rate or FX rate) between two currencies specifies how much one currency is worth in terms of the other. For example an exchange rate of 123 Japanese yen (JPY, ¥) to the United States dollar (USD, $) means that JPY 123 is worth the same as USD 1. The foreign exchange market is one of the largest markets in the world. By some estimates, about 2 trillion USD worth of currency changes hands every day.
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