The latest edition of The Economist’s ‘Big Mac’ index came out the other day. ‘Big Burger’ data implies that the Yen is undervalued by c.42%.
While the burger data is not always 100% reliable (it thinks the Indian Rupee is cheap too 😉), the tourists most certainly agree and have taken action quicker than tech-obsessed global equity investors. The introduction of 2-tier pricing systems (the expression “inbound-don” meaning dishes priced especially for wealthy gaijin has emerged) has not been enough to hold off a surge in tourist arrivals, a contributor to significant food price inflation.
One of Japan’s most popular YouTubers, Kazuki Nakata, left his job in order to video blog on the topic of growing vegetables at home in soda cans to help his many thousand fans manage the impact of fresh food costs growing by 17%, the highest pace in 8 years. Video via image above.
Much of the growth in household spending is non-discretionary. By the way, do give my friends at Augur Infinity whose data and software generates these great charts a ‘follow’ on Twitter (link via image above).
Increased costs of living are explicitly cited as the rationale and employers do not appear to be pushing back.
There are no indications either that this trend will slow down from here.
Headline inflation was able to shrug off the wage growth last year, but there would appear to be no hiding from it now.
30-Year (blue) and 10-Year (green) JGB yields.
Hayakawa: “My base view is that there is a lot more coming…there is little logical reason to believe that rate hikes will stop early.” Not words that anyone in finance under the age of 55 is used to hearing from Japanese central bankers…
"There are four kinds of countries in the world: developed countries, underdeveloped countries, Japan, and Argentina" Simon Kuznets, Nobel Prize economist
Nomura certainly thinks so.
The Yen is on the move. USDJPY (red, inverted) versus EURUSD and the DXY dollar index since Trump’s inauguration. Hourly chart.
Speculative Yen shorts are greatly reduced since the carry unwind mini crisis of last summer but traders (fearing trade war whipsaws?) are not yet positioned for a major move.
Total return of iShares MSCI Japan (EWJ) versus WisdomTree’s currency-hedged alternative (DXJ).
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