Impact of the Weakening Yen on Real Estate Investment

Impact of the Weakening Yen on Real Estate Investment

The yen has been weakening rapidly: on the foreign exchange market on April 8th, 2022, the yen was ¥124.15 to the dollar, the weakest against the dollar in past seven years since 2015. The Ukrainian situation was cited as the cause of the yen depreciation, with the Japanese yen falling as much as 7% since February 2022, when Russia began its invasion of Ukraine. The rise in U.S. long-term interest rates and the anticipation of a widening interest rate differential between Japan and the U.S. has led to a selling of the yen and buying of the dollar, but the depreciation of the yen has been particularly noticeable among the currencies of major countries as a result of the dollar’s appreciation.

The benefits of a weaker yen are that individuals will see an increase in the value of their U.S. dollar assets and other overseas assets, and companies will see an increase in profits in export industries as Japanese products become easier to sell overseas. A move of just one yen against the dollar can boost the performance of the auto mobile industry by hundreds of millions of yen. In addition, a weaker yen makes Japanese products cheaper to buy from overseas.

The disadvantage of a weak yen is that individuals are at risk of seeing imported goods become more expensive, and Japan, which relies heavily on imported goods as well as energy resources such as crude oil, is at risk of seeing price increases for all commodities, including daily necessities. Wages and other income remain the same, but only expenses increase. Wages and other income remain the same, but only expenses increase. This is especially important if you do not own stocks or other financial assets, as your assets will be diminished. From a company’s perspective, this means higher import costs and lower profits for the importing industry.

Although real estate prices were slower to rise than in other Asian countries, the global money surplus effect of the Tokyo Olympics, Osaka Expo, and Covid has gradually boosted prices and attracted the attention of foreign investors as a stable investment destination. The weak yen is also a benefit that encourages active investment. Compared to the 2012 level of 80 yen to the dollar, this means that real estate can be purchased for about 65% of the price, and 75% of the price 2 years ago. After the $1=150 level, we have seen intervention by the government and the Bank of Japan regarding the exchange rate, so we believe that a time when the exchange rate is hovering between 120-150 yen is an opportune time for foreign investors, as anything above 150 yen is not good.

For foreign investors who wish to take advantage of the opportunity presented by the weak yen to invest in Japanese real estate, please feel free to contact us for consultations on everything from the selection of investment properties and management methods to financing.