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Foreign Exchange for Expats in Japan

Submitted: March 2014

Japan’s official currency is the Japanese Yen (JPY). Its symbols are ¥ (international) and “円” (in Japan). The Bank of Japan (BoJ) is responsible for monetary policy. Japan does not impose any exchange controls, and there are no restrictions as to the holding of foreign currency in Japan.


Monetary policy

The Japanese Yen has been a freely floating currency since 1973. The BoJ does not target a specific exchange rate.

The BoJ has a mandate to “achieve price stability, thereby contributing to the sound development of the national economy”. Hence there is a 2% inflation target since January 2013.

Japan’s monetary policy over the past 20 years has been quite loose – interest rates have been keeping close to zero throughout the period – but these measures have not been enough to tackle Japan’s deflationary problems. The cash hoarding issue has probably been one reason for this, as evidenced by Japan’s flat M3 money supply in the 2000s which contrasts with persistent monetary base expansions.

Anyways, the BoJ has vowed to resort to more radical measures for fighting deflation. As part of an unprecedented Quantitative and Qualitative Easing (QQE) programme, the BoJ targets a ¥60tn to ¥70tn monetary base expansion per year, which on its own constitutes nearly 10% of Japan’s GDP. A very large share of this monetary base expansion is to invest in Japan’s Government debt. As money supply has resumed its expansion in the early 2010s, this is likely to feed through to the inflation rate. The BoJ is therefore on course to meet its 2% inflation target.

Japanese savers will be subject to negative real interest rates, at least in the first place. It should be noted, however, that Japanese policymakers are paying a particular attention to how savers are going to fare. See Investment for Expats in Japan.

Dovish monetary policy is in line with the current international trend. As the BoJ is one of the most radical central banks, this should weigh on the Japanese Yen. Don’t forget, however, that the BoJ’s radical stance has already been priced by the markets. What remains to be seen, however, is how long the current monetary policy will last.

If in the end Japan actually becomes a country with a structural 2% inflation rate, the exchange rates with the Euro, the US dollar or the British Pound are likely to stabilise, i.e. the Japanese Yen will no longer permanently appreciate versus these currencies. You might wish to check how the BoJ’s policy interacts with that of your home country, as well as how the markets price this.



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