Money Matters: The Yen & Japanese Real Estate Investments

By Peter Schuetz

Why is the Yen so strong?

There are three main reasons. First, hampered by the Bank Of Japan's ultra-low interest rate policy, Japan's economy has underperformed ever since the mid-90s, so it was actually better able to withstand the subprime market crash of 2008 than other economies were. Second, Japan is still a cash-based society, and during 2008 many investors were forced to repatriate their overseas investments by unwinding their Yen carry trade positions and driving demand for the Yen ever higher. Third, the Yen is seen as a safe haven currency alternative to the USD, especially during market turbulence.

Has the Yen's relationship with other major currencies changed significantly over the years, and are there any noticeable patterns of change? Can we anticipate any major weakening of the Yen this year?

The Yen remained relatively flat until 2008, when it shot up mainly due to the carry trade factors I've just mentioned. However, the Yen remains artificially strong and Japan's economy remains predominantly export-driven. Therefore, a weak USD and Euro are major hindrances for Yen-based economic performance. I believe that any major weakening of the Yen will only happen when the USD recovers its strength in a sustainable manner.

How should foreigners in Japan be using the strong Yen to their advantage?

This is a great time to invest your surplus Yen in other major currencies, buying into them while they remain undervalued in Yen terms. Going forward, the best available overseas investment funds are denominated in currencies like the USD, Euro, GBP, and AUD, so these provide viable reasons to diversify out of the Yen. The smartest and least stressful way is to save an affordable amount every month by currency-cost averaging from the Yen into these other currencies.

How do you view Japanese real estate for investment purposes?

Japan has three main advantages over the other major economies:

1. Rents are usually high enough and mortgage repayments low enough to provide a positive cash-flow for the property owner.

2. In most cases land accounts for about 80% of the value of the property, whereas in other major economies the land value is more like 30-50% of the property's value.

3. In Japan the landlord is usually viewed as doing a favor for the renter. In addition to a security deposit, the tenant often has to pay key money (one to two months' rent as a gratuity) to the owner for being able to rent the property, plus a contract renewal fee (one month's rent) every two years. Moreover, real-estate management companies are usually good at managing the details because Japan is a service-oriented country.

In conclusion, investing for capital gains only in Japan is risky, but the three factors above make Japan an excellent place to invest in property for positive monthly cash flow.

Peter Schuetz is a Wealth Counslor at International Solution Group.To ask a question for ISG to address in next month's Money Matters Q&A, or for any other inquires, please email 

For any other inquiries, please email or call 090-8642-6775

upcoming money matters event:

"Employee Rights in the Workforce"

Date/location: 18:30-21:00, Thurs. March 24th @ Foreign Correspondents' Club of Japan (FCCJ), 20F Yurakucho Denki Bldg., Tokyo

Price: ¥5,000 (ICA members: ¥4,000), including buffet dinner with one free drink served before the presentation

RSVP: by 17:00, March 23rd - visit www.isgjapan.com/events.cfm

More info: www.isgjapan.com/events.cfm?eventID=3 | email

Speaker profile: Tim Langley is an international attorney and Japan-based consultant. He has more than 35 years of experience in Japan. Mr. Langley has been chief lawyer to Apple Computer Japan, to General Motors (Asia Pacific); and he has advised countless large and small companies in their attempts to build a larger presence in Japan.

To download a PDF of this story as it appears in the magazine, click here

Latest Forum Threads