Understanding the Weak Yen: A Guide for Jobseekers

[Edited: May 29, 2024]

Why the Yen is Weak Compared to the US Dollar

The Japanese yen has significantly weakened against the US dollar in since last year. Several factors contribute to this trend:

Monetary Policy Divergence:

• The Bank of Japan (BOJ) has maintained a very accommodative monetary policy, including negative interest rates and extensive asset purchases, to stimulate the economy.
• In contrast, the US Federal Reserve has been raising interest rates to curb inflation, making US assets more attractive to investors seeking higher returns.

Economic Performance:

• Japan's economic growth has been relatively slow compared to the robust recovery seen in the United States. According to the Covid Economic Recovery Index published by the Horizon Group, the United States is ranked 7 in economic recovery while Japan is 19th on the list. This disparity in economic performance has led to greater demand for the US dollar, further strengthening the value of the dollar. 

Trade Balance:

• One of the primary reasons for the fluctuation in Japan's trade balance is the cost of energy imports. Japan imports a significant portion of its energy needs, including oil, natural gas, and coal. High global energy prices led to increased import costs, contributing to trade deficits.
• As Japanese imports increase, the country needs to sell yen on the foreign exchange market, increasing the supply of yen relative to other currencies.  Consequently, increased import costs also increase the demand for currencies like the US dollar and the Euro. This imbalance in the currency supply (i.e. excess yen and high demand for the dollar) further devalues the yen and strengthens the dollar. 

What a Weak Yen Means for the Labor Market

• A weaker yen makes Japanese exports cheaper and more competitive abroad, while also making Japan an attractive and affordable travel destination. As Japan's cultural relevance in on the global stage continues to grow, this is a great time for bilingual professionals to enter industries that work internationally, like the export or tourism sector.  

Higher Import Costs:

• Conversely, a weaker yen makes imports more expensive. This can lead to higher costs for raw materials and international goods. Japan imports 90% of its energy and 42% of its food. 

Inflation Pressure:

• Increased import costs can contribute to inflation, making imported goods more expensive for consumers in Japan. This inflationary pressure is already affecting the prices of everyday items, however, despite noticeable inflation, Japan remains extremely affordable compared to other countries around the world. Rapid inflation in the rest of the world stands in stark contrast to the affordability of life in Japan.
  

Foreign Investment:

• A weaker yen can also attract foreign investment as assets in Japan become cheaper for investors using stronger currencies. This can lead to capital inflows, boosting certain sectors and potentially creating employment opportunities.

Tips for Foreign Professionals Accepting Positions in Japan

• When negotiating your salary, consider the negotiation from both a domestic and international perspective. Does your salary afford you a comfortable living in Japan? However, if you exchange that number to your home currency while the yen is weak the salary might not seem as attractive. But remember that currency exchange rates fluctuate, so if you plan to work in Japan for several years, a big-picture perspective might be helpful during salary negotiations. 

Exchange Rate Risks:

• If you plan to send money home, exchange rate fluctuations can affect the amount received in your home currency. Consider financial planning strategies to mitigate this risk, such as setting up a foreign currency account or using hedging options.

Contract Terms:

• Review the terms of your employment contract carefully. Be aware of the benefits your company provides for you, such as housing, phone, or transportation allowance. In addition, many companies will give their employees incremental raises in their salary for learning new skills, There are several avenues for you to increase your value and salary in Japanese companies so ask your colleagues or HR about such opportunities. 

Tax Implications: