As the yen appreciates, the yen-denominated valuation of an All Country fund declines, but from a purchasing-power perspective, incorporating foreign-currency assets can reduce the range of fluctuations and stabilize household purchasing power, as illustrated with specific examples.
The yen's appreciation has been attributed to expectations surrounding the Bank of Japan's monetary policy, expectations of narrowing interest-rate differentials, and trends in GPIF's domestic asset allocation. On 3 September, the yen temporarily strengthened to around ¥155 per US dollar. Against this backdrop, the author examines the relationship between a decline in asset valuations as the yen appreciates and purchasing power.
Using smartphones as an example, the article shows that ¥10 million would buy approximately 166 units at ¥150 to the dollar, approximately 166 units at ¥180, and approximately 208 units at ¥120. While holding yen-denominated assets alone produces larger fluctuations in purchasing power, holding half in foreign-currency assets reduces the range of fluctuations and contributes to greater stability in purchasing power.
For households in the drawdown phase, even if foreign-currency assets decline in value and asset balances shrink when the yen appreciates, spending on imported goods is reduced, narrowing the annual deficit from ¥600,000 to ¥480,000. This shows that the relationship between the amount withdrawn from assets and purchasing power cannot simply be reduced to a question of gain or loss.
From the perspective of asset life, holding foreign-currency assets when the yen appreciates results in an asset life of 35.8 years, which in some cases falls short of the 41.6 years reached with yen-denominated assets alone. Overall, however, the article concludes that investors should aim to hold both yen and foreign-currency assets so that purchasing power is not significantly disrupted regardless of which way exchange rates move.