Japan COLAs dependent on yen fluctuations, July elections

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Japanese Prime Minister Shinzo Abe listens as U.S. President Barack Obama speaks to the media in the Oval Office following a bilateral meeting between the two leaders, Friday, February 22, 2013.    (Pool photo by Kristoffer Tripplaar/Sipa Press via Abaca Press/MCT)
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Japanese Prime Minister Shinzo Abe listens as U.S. President Barack Obama speaks to the media in the Oval Office following a bilateral meeting between the two leaders, Friday, February 22, 2013. (Pool photo by Kristoffer Tripplaar/Sipa Press via Abaca Press/MCT)

Japan COLAs dependent on yen fluctuations, July elections

by: Erik Slavin | .
Stars and Stripes | .
published: June 29, 2013

YOKOSUKA NAVAL BASE, Japan — After a year of precipitous drops in the value of the Japanese yen – and an accompanying decline in servicemember cost-of-living-allowances – July national elections may hold the key to whether the currency continues to weaken.

Prime Minister Shinzo Abe’s policies, popularly known as Abenomics, have successfully weakened the yen as part of a bid to jumpstart the nation’s long-stagnant economy. The measures maintained Abe’s approval rating at around 60-70 percent this year, making him the most popular prime minister since 2006.

However, it’s doubtful Abe’s economic policies would find that much approval among U.S. servicemembers.

A year ago, an E-5 stationed at Yokosuka and living off base with two dependents made an extra $718 per paycheck, because of the formula the U.S. government reimburses servicemembers and some civilian workers for a high cost of living.

At that time, the yen rate hovered at just under 80 to the dollar.

On Wednesday, the yen traded at 97.5 to the dollar, a roughly 22 percent decrease in value. However, that same E-5 at Yokosuka is now receiving $469 in cost-of-living payments, a 35 percent decrease.

The end result is a net gain for some U.S. personnel who spend a lot of money off-base, but a loss for those who do not.

The yen valuation roller coaster has slowed in recent weeks, as the initial enthusiasm over Abenomics has subsided as markets wait to see the full effects of Abe’s policies, said Kengo Suzuki, chief foreign exchange strategist at Mizuho Securities.

Until now, much of Abe’s yen-weakening strategy came from increasing government debt and spending, which is generally acknowledged as a short-term stimulus.

For a longer-term impact, Abe’s Liberal Democratic Party will need to make gains in Japan’s upper house legislative elections in July, Suzuki said. The party already commands a large majority in the lower house of parliament, known as the Diet.

“If the Liberal Democratic Party wins, it will stabilize the administration and it can make bold policy,” Suzuki said.

The recovering economy in the United States and a brightening outlook for most of Europe also contribute to a weaker yen outlook during the rest of the year, Suzuki said. Many investors looked to the yen as a safety valve when the global economy crashed, but those same investors have since pulled out of the yen in search of higher gains.

“I expect the yen to continue to be weak for the next year or two,” Suzuki said.

Stars and Stripes reporter Hana Kusumoto contributed to this report.

slavin.erik@stripes.com
Twitter: @eslavin_stripes
 

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