As the yen continues to weaken, the Katsu Curry Index estimates its fair value at ¥62 to the dollar, while the market has remained around ¥159 without returning to that level.
Japan's yen-dollar exchange rate was reported to be in the ¥159 range on the 17th. Meanwhile, the Katsu Curry Index, which uses the prices at Japan's curry chain CoCo Ichibanya to apply the principle of purchasing power parity (PPP), estimated the fair yen-dollar exchange rate at around ¥62.
The gap could persist against a backdrop of yen depreciation, and some analysts believe the weaker yen is emerging as a source of concern for global financial markets. According to an analysis by Jeff Yu, who calculated the index, the yen would need to appreciate substantially from current levels to recover purchasing power on a par with that of other high-income countries.
The interest-rate differential between Japan and the United States is also a factor. The US Federal Reserve's policy rate is 3.50%–3.75%, compared with 1.00% for the Bank of Japan, and incentives for yen carry trades remain in place. Further rate hikes by the Bank of Japan would bring with them the dilemma of increasing the fiscal burden.
As yen depreciation accelerates, selling pressure on Japan's US Treasury holdings could increase and potentially affect US long-term interest rates. At the same time, a rapid appreciation of the yen could prompt investors to repay yen-denominated asset financing, potentially causing market disruption.