Daily government bond yields from the 14 countries listed above form the base historical data for fitting the number of yield curve factors and their volatility. We showed in a recent post on SeekingAlpha that, on average, investors have almost always done better by buying long term bonds than by rolling over short term Treasury bills in the United States. That means that market participants have generally (but not always) been accurate in forecasting future xm group inflation and adding a risk premium to that forecast. This study is being updated using the 14-country data set in coming weeks. Many economists have concluded that a downward sloping yield curve is an important indicator of future recessions. The next graph describes the probability of negative 3-month bill rates for all but the first 3 months of the next 3 decades.
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MEI’s report showed that a weaker yen had made Japan a more appealing shopping destination. This is in stark contrast to other countries around the world, Mastercard’s chief economist for Asia Pacific David Mann said, where tourists prefer to spend on experiences, such as going to a restaurant, concert or bar. 1 After the first 20 years in the simulation, the 10-year yield cannot be derived from the initial 30-year term structure of yields.
Mastercard’s Mann said that the contribution from domestic consumption in Japan is expected to improve, given the strong labor market and the increase in wages. Higher domestic inflation has prompted the Bank of Japan to raise interest rates, in contrast to other major central banks that are lowering rates. That, in turn, has triggered the yen to strengthen to a five-month high against the U.S. dollar on March 11. This default probability analysis is updated weekly based on the JGB yield simulation described in the next section.
What It Takes to Be “Rich” in Different Asian Countries
The probability of negative rates peaks at 25.7%, versus 26.3% last week, in the period ending February 28, 2031 and stays elevated at or above 10% thereafter. We start from the closing JGB yield curve published daily by the Japan Ministry of Finance and other information sources. Using a maximum smoothness forward rate approach, Friday’s implied forward rate curve shows 1-month rates at an initial level of 0.35%, compared to 0.33% last week. As maturities lengthen, there is a steady increase in forward rates, hitting 3.35% at the end of the 30-year horizon, versus 3.41% last week.
Japan’s booming tourism industry
The calculation process is the same for any portfolio of assets with credit risk included. If you divide the average annual salary in Japan by the average working hours, we get an “average wage” of 2,417 yen per hour (about ~$17 USD/hour). Most people would consider this a decent wage in Japan, since it’s an average that includes very well-paid workers in the sample, too. When it comes to foreigners working in Japan, one of the most common jobs is teaching English. The average salary in that position is about 3.2 million yen (~$22,600 USD) per year.
This is great for Americans visiting Japan, as it means our dollars go further in Japan now. Japan’s largest labor union announced last Friday that it managed to secure an average 5.46% increase in wages from April, its largest increase in 34 years. Average individual spending among overseas travelers to Japan rose by 6.8% to 227,000 yen.
For example, as of mid-2023, 1 million yen is roughly $7,000 USD, and it can buy about the same as $7,000 USD in the U.S. If you’re new to using yen, it can take a while to get a feel for how much it’s worth. Aside from conversion rates, you also need to consider the costs of rent and products in Japan, too—right? What’s more, Goto said that while overtourism has become a major problem in regions like Kyoto, foreign demand is clearly supportive for wages and the inflation positive feedback loop that the BOJ wants to achieve. Should there be an appreciation of the Japanese yen, ING’s Kang said it would have a more positive impact on the domestic economy, boosting private consumption and services.
The cost of living in Japan is about 4% lower than in the United States on average. Again, keep in mind that the cost of living in Japan is very similar to the U.S. on average (more on that below). So just think about how these Japanese salary numbers would apply to the U.S. However, as of mid-2023, $1 USD is worth around 140 yen, not just 100 yen.
Tourism contributed an average of 0.1 percentage point to GDP from 2010 to 2019, at a time when Japan’s GDP growth rate was averaging 1.2%. Foreign tourists have had a disproportionately large impact on Japan’s economic growth in recent years. However, their influence could start to wane as the yen strengthens, analysts said. Using the methodology outlined in the appendix, we simulate 100,000 future paths for the JGB yield curve out to twenty years. First, since Japan’s cost of living is similar to the U.S., it’s pretty easy for Americans to think about this issue.
- The number of factors, 12 for the 14-country model, has been stable since June 30, 2017.
- Mercer’s 2020 Cost of Living survey estimated Tokyo to be very expensive, however.
- As explained in Prof. Robert Jarrow’s book cited below, forward rates contain a risk premium above and beyond the market’s expectations for the 3-month forward rate.
- If you want precise conversions or you’re not great at doing math in your head, you may want to download a currency conversion app on your phone.
- Foreign tourists have had a disproportionately large impact on Japan’s economic growth in recent years.
Japan has a median salary around 3.5 million yen (or ~$24,800) annually, and average salary around 4.2 million yen (or ~$29,700) annually. When broken down monthly, that’s a median salary of roughly 291,000 yen (or ~$2,050 USD) per month. Weaker tourism growth does not necessarily mean Japan’s GDP expansion will fall off a cliff.
The chart below shows the cumulative 10-year probabilities of failure for each of the 4 possible capital ratios when the asset’s maturity is 10 years. For the 5 percent case, that default probability is 47.19%, versus 46.36% in the prior week. In my experience, one of the very expensive things in Japan is hotels and Airbnbs. So if you got a long-term lease, you may be able to get much better prices than living short-term in Japan.
But in Japan, the 100-yen stores actually have some high-quality, durable products for a great value. But personally, I would say it’s about the same when it comes to most expenses. Personally, as someone who grew up in the U.S. and has lived in many U.S. cities, I feel like the estimates I see for Japan prices are usually pretty similar to the U.S.
What is the median estimate for the number of Japanese yen per euro for calendar year 2020? a) 132..
- The value of the Japanese yen has fallen relative to the US dollar in recent years.
- Yujiro Goto, head of FX strategy for Japan at Nomura, told CNBC that weaker inbound tourism would be a negative for Japan’s GDP growth.
- If you divide the average annual salary in Japan by the average working hours, we get an “average wage” of 2,417 yen per hour (about ~$17 USD/hour).
- For the 10-year JGB yield, the most likely range is from 2% to 3%, also unchanged from last week.
This week’s simulation shows that the most likely range for the 3-month bill yield in the JGB market in ten years is from 0% to 1%, unchanged from last week. There is a 24.80% probability that the 3-month yield falls in this range, compared to 25.24% one week before. Note that the probability of rates in the next-higher one percent range is also high. For the 10-year JGB yield, the most likely range is from 2% to 3%, also unchanged from last week.
As explained in Prof. Robert Jarrow’s book cited below, forward rates contain a risk premium above and beyond the market’s expectations for the 3-month forward rate. The risk premium, the reward for a long-term investment, is near zero for maturities of 10 years and under. It then increases steadily for maturities over 10 years, taking on a magnitude similar to most other bond markets in major countries.
For more on this topic, see the analysis of government bond yields in 14 countries through January 31, 2025 given in the appendix. “The measures announced over the weekend to boost consumption also include supporting higher wage growth and stimulating Chinese asset markets. This may trigger an increase in Chinese outbound tourism,” she added. Yujiro Goto, head of FX strategy for Japan at Nomura, told CNBC that weaker inbound tourism would be a negative for Japan’s GDP growth. After currency conversion, the cost of living in Japan is similar to the U.S. This means you can just convert JPY to USD for a sense of the purchasing power.
Converting Yen to USD
Goto also said that gradual strength in the yen could slow cost-push inflation and would improve real wages among domestic residents. This would help shift the GDP contribution from foreign spending to domestic spending. Indeed, inbound tourism contributed half of Japan’s full-year GDP growth rate of 1.5% in 2023, and 0.4 percentage points to what is the spread in forex Japan’s 0.1% annual GDP growth last year, according to the Mastercard Economics Institute.
Mercer’s 2020 Cost of Living survey estimated Tokyo to be very expensive, however. They found Tokyo to be the third most expensive city in the world for expats to live in (Hong platforme de trading Kong was #1). If you want precise conversions or you’re not great at doing math in your head, you may want to download a currency conversion app on your phone.
