The yen-dollar exchange rate reached 160 yen on April 29, 2024. This is the yen's weakest level in 34 years. The Bank of Japan's policy of not raising interest rates too quickly in the face of a 2% rise in prices can be seen as putting pressure on the yen to weaken.
Looking at the real effective exchange rate, which is an index of currencies, the current exchange rate level is the weakest since the introduction of the floating exchange rate system in 1973. At the end of March 2024, the real effective exchange rate is ¥70.94, continuing a steady decline from its previous peak of ¥194.15 in April 1995. The pace of depreciation accelerates, especially after 2021, with a 27% decline in the three years and two months from January 2021 to March 2024.
Looking at the relationship between the dollar and the yen, we can see the degree of undervaluation: as of the end of January 2024, the consumer price-based purchasing power parity is worth ¥108.02 (0.926 cents per yen) to the dollar, but the real effective exchange rate is ¥146.92 (0.681 cents per yen). This means that the yen is 26.5% undervalued against the dollar. This is a situation in which visitors to Japan who bring their own dollars can feel that things in Japan is quite undervalued, which explains the remarkable increase in the number of foreign tourists. By the way, in April 1995, the purchasing power parity was ¥197.90 and the real effective exchange rate was ¥83.53, making the dollar 2.4 times more expensive. If we assume that the export price is based on the real effective exchange rate and the cost is based on the purchasing power parity, the cost is ¥197 and the selling price is ¥83, which is by no means a profitable level. Therefore, Japan lost its export competitiveness and was forced to move its production bases overseas and cut costs drastically.
A weaker yen is expected to have several positive effects on the Japanese economy. The biggest impact will be an increase in the earnings of export-oriented companies. In addition, manufacturing is beginning to shift / shift back to Japan, which is expected to stimulate the local economy. A shift to high value-added industries is expected as Japan's declining population is not conducive to labor-intensive mass production. The establishment of TSMC's semiconductor manufacturing facility in Kumamoto, Japan is a symbolic event. The nominal GDP of Kumamoto Prefecture in 2020 is 6.1 trillion yen (source available in Japanese only), but according to Kyushu Financial Group (source available in Japanese only), the 10-year economic impact of TSMC's establishment is estimated at 6.9 trillion yen (including a GDP impact of 3.4 trillion yen), indicating the magnitude of the impact.
On the other hand, a weaker yen also has negative effects, such as a decline in the value of yen-denominated assets and higher import prices. Companies that are poorly positioned, such as retailers that sell imported goods, face an increased risk of earnings deterioration. In addition, public discontent will increase if the yen's depreciation leads to higher import prices. Given that the government's approval rating is already low, in the 20% range, there is a risk that rising discontent could lead to political unrest.
As we discussed previously, at Cadira Capital Management, we build our portfolio through a series of investment decisions made by analyzing the fundamentals of each individual company. Therefore, our approach to currency fluctuations will focus on analyzing the impact on company earnings rather than a top-down approach that adjusts the entire portfolio based on predictions of currency trends.
Learn More
2026/7/9
The Impact of AI's Evolution on Asset Management
AI Adoption: Rapid Spread, Gap in ResultsThe evolution of AI is bringing about a structural shift in...
2026/6/9
The Need to Reassess Risks considering Extreme Weather
Growing Cost of Extreme Weather Risk MitigationIn May 2026, CDP (Carbon Disclosure Project, an NGO p...
2026/4/17
The Impact of Large-Scale Military Operations Against Iran
Japan’s Crude Oil and LNG ProcurementFollowing the large-scale military operation conducted by the U...
2026/3/13
A Review of the Lower House Election Results and Key Themes Ahead
Lower House Election ResultsIn the February 2026 general election for the House of Representatives, ...
2026/2/13
Japan’s Evolving Discount Rate — Re-examining Corporate Valuation in a Rising Interest Rate Environment
Interest Rate Trends and BackgroundLong-term interest rates in Japan have been rising. Comparing Jan...
2026/1/19
Further Revision of Governance and Shift in Management Resource Allocation: Expanding the Scope of Growth Investment in the Japanese Stock Market
Review of 2025The Japanese equity market in 2025 experienced a broadly strong upward trend. The TOPI...
2025/12/19
AI-Powered Threats: How Cybersecurity Became a C-Suite Priority
Cybersecurity DamageIn recent years, cybersecurity incidents have continued to rise sharply. Accordi...
2025/11/21
Japan's First Female Prime Minister: The Takaichi Administration and New Investment Opportunities
Japan’s First Female Prime MinisterIn October 2025, Sanae Takaichi was elected Prime Minister of Jap...
2025/10/31
Defining the Boundaries of Sustainable Investing in an Era of Expanding Defense Spending — Cadira’s Investment Policy
In recent years, rising geopolitical tensions have heightened the importance of the defense industry...
2025/8/15
Staying Grounded Amid Political and Trade Uncertainty in Japan
At Cadira Capital Management, we believe that while macro-level developments such as politics and tr...
2025/7/25
Gender Reform as a Catalyst: What Sustainable Investors Should Watch in Japan
On June 11, the World Economic Forum released its Global Gender Gap Report 2025 (*1), in which Japan...
2025/5/8
Agility Matters More Than Ever—The Impact of U.S. Tariff Policy and Implications for Japanese Equities
When the environment is highly uncertain, investors cannot rely solely on a company’s current busine...
2025/4/18
Governance Reforms and the Future of Japan’s Listed Subsidiaries: Unlocking Value through Transparency
Efforts to enhance corporate governance in Japan continue to advance steadily. The Tokyo Stock Excha...
2024/11/29
Trends in the US Housing Market
Housing was one of the key issues of the 2024 U.S. presidential election. Skyrocketing home prices a...
2024/11/22
On Japan’s House of Representatives Election on October 27
Elections to the House of Representatives were held on October 27. The Liberal Democratic Party (LDP...
2024/10/18
On the 2024 LDP Presidential Election
On October 1, Shigeru Ishiba was sworn in as Prime Minister of Japan. Prior to this, on September 27...
2024/9/17
August Stock Market Volatility and Subsequent Outlook
The Japanese stock market plunged in the first half of August, with the TOPIX posting historic decli...
2024/5/17
On the Recent Weakening of the Japanese Yen
The yen-dollar exchange rate reached 160 yen on April 29, 2024. This is the yen's weakest level in 3...
2024/4/26
On the Bank of Japan's Rate Hike
On March 19, 2024, the Bank of Japan decided to raise its policy rate from -0.1% to 0-0.1%. This is ...
2024/2/9
Impact Integrated Value (IIV)
How can we effectively integrate both positive and negative impact when making investment decisions?...
2024/2/2
Positive Impact Assessment
Integration of positive impact in corporate valuation poses significant challenges. For standardized...
2024/1/26
Our Investor Contribution
Engagement is a core activity essential to achieving our mission. It is conducted with the aim of ma...
2024/1/19
Sustainable Companies
The Japanese stock market is in a situation where structural changes are creating new investment opp...
2024/1/12
Structural Investment Opportunity
At Cadira Capital Management, we believe that investor engagement will bring about a structural chan...
2023/12/1
Our Investment Philosophy
At Cadira Capital Management, we believe that "investing for sustainability" will deliver superior r...
2023/11/8
Our Views on Geopolitical Risks
The conflict between Israel and Palestine erupted on October 7th, raising concerns about geopolitica...
2023/10/24
Perspectives on Equity Investing in a Declining Population
"Is there any reason to invest in countries with declining populations?"This is an unavoidable quest...
2023/10/9
Our Views on Exchange Rate Risks
The Bank for International Settlements (BIS) announced that the real effective exchange rate (*1) fo...
2023/9/25
Our Bottom-up Approach to Listed Equity Impact Investing
At Cadira Capital Management, we take a unique bottom-up approach to impact investing in public equi...
Important Notice
The content of this website has been prepared by Cadira Capital Management Co., Ltd. (“CCM”) for informational purposes only to professional investors who are expected to make their own investment decisions without undue reliance on such content. The views and strategies described may not be suitable for all investors. Under no circumstances is it to be used or considered as legal or investment advice, a recommendation to buy, an offer to sell, or a solicitation of an offer to buy or sell securities and investors should be advised to consult their own stockbroker, accountant, solicitor, independent financial adviser, or other professional adviser for advice. We accept no liability whatsoever for any direct or consequential loss arising from any use of this content. The information is intended solely to report on investment strategies and opportunities identified by CCM. Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. CCM and its affiliates do not warrant the accuracy or completeness of any of the information or data contained herein. References to specific securities and their issuers are for illustrative purpose only and are not intended to be, and should not be interpreted as investment advice or, a recommendation, offer or solicitation for the purpose or sale of any financial investment. This content does not constitute tax advice and as such investors should be advised to consult their own tax advisers regarding the tax consequences of their investment activities. Investment return and principal will fluctuate, so that a client's initial investment may increase or decrease. Investing in securities markets involve risks like those arising from stock and bond markets, currency exchanges rate and interest rate volatility. No part of this content may, without CCM prior written consent, be copied, reproduced, or published by any recipient for any purpose. Past performance is not indicative of future performance.
