On hearing that deposit interest rates in Japan are near zero, an investor from Jakarta said in apparent disbelief “You must be joking.”
After being explained the Japanese economic situation, he asked, “If that’s the case, why don’t people deposit their money abroad?”
In 1997 the Indonesian rupiah fell to about one sixth of its value against the dollar.
For the investor, who is counting on his country’s currency to weaken even more, it no doubt seemed strange that Japanese do not move their yen funds offshore, given domestic interest rates that hover perpetually near zero.
By nature, Japanese do not often think of investing in a currency other than the yen.
Until recently, the yen had gained ground against the dollar and there may have been little advantage in investing in other currencies. But this may not necessarily be the case in the future.
Behind the yen’s strong showing was the nation’s trade surplus. But the surplus is tending to shrink and the national debt has swollen. What’s more, interest rates are near zero amid signs of an economic slowdown.
A flight of foreign capital will prompt yen-selling, and factors point to a weak yen.
U.S. and European banks use the approach of internationally distributed investment. For example, U.S. banks spread and properly control risk by investing not only in Asia but also in Europe, South America and Russia. This approach aims to limit the damage that can be incurred at one time, no matter what or where.
While there is no need to be this strict, in some respects this approach also serves as a reference for private investment. The concept of distributed investment is the concept of risk management and it proves effective in a crisis.
From an international perspective, investing only in Japanese stocks, deposits and real estate presents the risk of losing asset value.
The risk of not holding foreign currency does exist. There is no guarantee Japan will remain the world’s second-largest economy. So one way to protect your own assets is to keep them in a foreign currency. It is now possible to hold a fair amount easily. To begin with, it may be an idea for Japanese to overcome their fear and try making foreign currency deposits.
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