The Safe Haven of the Japanese Yen

Japan Properties

Japan Real Estate

03 Nov, 2020 –

During times of political and economic uncertainties, markets can become volatile and cause panic. At such time investors look for “safe-haven” alternatives. Let’s look at why Japan is their preferred choice.

 

First, what are some of the other safe-havens?

Switzerland has a long history of low inflation and political financial stability. In comparison, the yen is more liquid, and therefore readily available to trade. Germany’s bonds are popular, but the country does not have its own currency and the euro is not yet considered a safe-haven. That brings us to the US dollar. Although treasury bills are by far the most frequently used example of a “risk-free” asset, in reality, in a crisis, traders and investors buy yen over other currencies as we have seen in the aftermath of the 9/11 attacks in 2001, the Madrid train bombings of 2004, the Lehman collapse in 2008, the eurozone crisis in 2010 and the Brussels bombings in 2016.

During a crisis situation, the yen can quickly become very crowded during times of refuge and this is what sends the value soaring, thereby holding on to its value.

 

Reasons Behind the Safe Haven

Japan has not always been a safe haven. At the time of the Japanese banking crisis during the late 1990s and the stock market collapse, we saw a much weaker yen. The perception of the yen changed after the crisis. Here are a couple of reasons why –

First, Japan has held the position as the world’s top creditor nation for nearly three decades. The value of foreign assets held by Japanese investors is substantially higher than the value of Japanese assets owned by foreign investors. Putting it in perspective, these “net foreign assets” stood at 339 trillion yen at the end of 2015, based on data from the Finance Ministry, placing Japan as the largest creditor nation, a title it’s held since the mid 1990s.

Second, generally, when markets become risk-averse, money tends to move back home. As the largest creditor nation, Japan’s repatriation of capital during a crisis, together with other currencies flowing into the yen, cause it to strengthen. As quoted in the New York Times, “The Japanese government is in deep debt, but the rest of Japan has ample money to spare.”

 

Relationship Between Real Estate and the Yen

Investors turn to Japanese properties for their low price (as low as USD$30K) and high yield (5% to 11% net pre-tax.) This is not a market for speculative capital gain, but for rental income cash flow. Japanese properties that we facilitate are occupied, unless an investor is specifically seeking a vacant property for personal use, and therefore generate immediate rental income. As an additional benefit to price and high yield, investors who keep their income in Japan and transfer it when the yen peaks against their currency also benefit from the exchange value. Investments in Japan are particularly attractive during times of uncertainty.

 

(Source – Priti Donnelly, “Nippon Tradings International”, Pic – Bing.com)

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