The Ghost of Christmas Yet to Come
The UK in particular was a bit of a shock.
As a long-term resident of Japan who likes to travel abroad and might end up moving somewhere else at some point (but not in the immediate future), I am very interested in exchange rates and what they do to my purchasing power.
A strong yen makes it cheaper to travel or move abroad. A weak yen makes it more expensive to travel or move abroad.
The question then becomes: what do I do about this? It depends on whether you think the yen will be stronger or weaker compared to your target currencies in the future. Personally, I don't know what the yen will do, or how it will perform against the pound, the euro, or the baht (my main currencies of interest).
However, I can do the following mental exercise. I did a variation of this immediately after the earthquake and nuclear accident in Tohoku and was pleased with how it helped me reach a decision.
Basically there are two factors and two decisions:
The yen either gets stronger or it gets weaker. I can then keep my savings in yen or in another currency.
We can then examine the results of each factor and decision:
- The yen gets stronger and I keep my savings in yen: win. My strong yen goes further in the future.
- The yen gets stronger and I keep my savings in another currency: lose. My comparatively weaker currency does not go as far as my yen would have gone.
- The yen gets weaker and I keep my savings in yen: lose. My weaker yen does not go as far in the future.
- The yen gets weaker and I keep my savings in another currency: win. My stronger currency goes further, in Japan or abroad.
This seems to be a 50:50, ie either option has the potential to be a good choice.
However, there is another thing to consider. I work in Japan, so my earning potential is in yen. This provides insurance against the strong yen scenario. Even if I make the wrong bet with my savings, I'll be fine because I am getting more yen each month.
On the other hand, in a weak yen situation, my earning in yen would not help. For this reason, and also because I am not confident that the yen will strengthen over the medium- to long-term, I choose to keep most of my savings and investments in other currencies (mainly US dollars and UK pounds).
I can do this easily using Shinsei Bank's multi-currency online account and Rakuten Securities' US share-dealing service.
How about you, what do you think about currencies and exchange rates? Is it a part of your financial planning? Please leave a comment below.