The International Value of the Yen Hits Record Low, Significantly Lagging Behind the Dollar and Other Currencies, Declining in Status

Niseko real estate investment news

~We deliver information on how to enjoy resort life in Niseko and recommended investment information from the local area~

On the 20th, the Bank for International Settlements (BIS) announced that the “real effective exchange rate” (REER), an index showing the international value of the yen (with 2020 as 100), was 68.65 in May, marking a new record low. This is due to the slower growth of prices and wages in Japan compared to overseas and the prolonged depreciation of the yen. It is lower than the levels seen in the early 1970s, and the gap with the dollar, euro, and yuan has widened. The yen’s status as a major currency is being shaken.

Niseko real estate company CEO’s perspective

Is Japan becoming a poor country? Once, when Japanese people traveled to Southeast Asia, they felt that everything was “cheap” when shopping. Now, tourists visiting Japan from overseas find it cheap to pay over 7,000 yen for a seafood chirashi sushi that locals would eat for about 2,000 yen. Meanwhile, when Japanese people go to Hawaii, they pay 1,800 yen for pancakes. For a family of five, one meal costs 9,000 yen. The average annual income in the U.S. exceeds 10 million yen, while in Japan, it is slightly less than 6 million yen. It’s no longer a time when ordinary people can easily travel abroad.

From a real estate perspective, Japan is experiencing an unprecedented bargain sale. The real estate market in Niseko is also very active.

The depreciation of the yen on the international market can have several impacts on the Japanese real estate market. Below are the main effects:

1. Increase in Foreign Investors

A weaker yen makes Japanese real estate appear cheaper to foreign investors, potentially increasing investment from abroad. Particularly, investors from Asia and North America are expected to take notice.

2. Increased Demand for Tourist-Oriented Real Estate

A weaker yen makes Japan a more attractive travel destination for foreign tourists, boosting the tourism industry. As a result, demand for hotels and short-term rental properties may increase, potentially driving up real estate prices.

3. Rising Material Costs

A weaker yen raises the cost of imported goods, which can increase the prices of building materials and equipment. This may lead to higher costs for new construction, ultimately affecting overall real estate prices.

4. Impact of Inflation

If a weaker yen leads to inflation, overall prices may rise, including real estate prices. However, if this is accompanied by rising interest rates, the increased burden of mortgage loans may reduce purchasing demand.

5. Behavioral Changes in Domestic Investors

A weaker yen may cause domestic investors to shift their focus to overseas investments. This could result in decreased investment in the domestic real estate market.

Summary

The depreciation of the yen’s international value can have multifaceted impacts on the Japanese real estate market. In the short term, an increase in foreign investors and a boost in the tourism industry can be expected. However, in the long term, the complex interplay of rising construction costs and inflationary pressures necessitates careful monitoring of market trends.