Transcript
Speaker: Welcome back, everybody, to the Buying a House in Japan podcast. My name is Joey Stockerman. He's your host, joined by my co -host. Take Kurosawa. Let's go. Dear Diary series today. A few things to cover. I'm back from Japan, back from TBC. It was hot there for sure. Man, I did not. I wanted to spend more time outside. We have such a lovely yard balcony and I spent next to, I would say, 0 .01 % of my time I spent outside.
Speaker: We're feeling good in Santa Cruz, so Joey's actually visiting for an off -site here. Temperatures, 24 Celsius. so yeah Nice, got a cool breeze. Doesn't feel like summer here, right? Or it does feel like summer. Yeah, just Japan's really nice, but buyer beware, summers are very hot. We have ah come to the conclusion there's no insulation in the Tokyo base camp house or Tama base camp house, unfortunately. Joey told us the gopher in front of our yard left a huge piece of shit.
Speaker: I think it's a mole. man Maybe a mole. Yeah. Other than that, house is kind of half, I would say half done. There's really only one more room that needs like this living room, potentially guest bedroom room still needs some work, but after that should be ready to rent. Oh yeah. So if you want to rent Tama base camp, we will have it ready September 1st until the end of the month. We will come with a car. So if anyone is coming to Tokyo and needs a,
Speaker: for technically four bedrooms, so we're actually gonna put four beds, one bathroom, so maybe not enough bathrooms, but with a car, I'm gonna probably go end of this month and set up a working desk, so pretty ideal for digital nomads. Let us know, time of base camp, ready to rent. Yep, about an hour from Shinjuku and even Seiseki Sakuragaoka, kind of area is very nice, I spent a lot of time there. Good cafes I found, I got recommendations. Shoot us an email, contact at acchiamart .com, we'll hook it up with a good deal.
Speaker: All right, Joey, today's topic, really, really hot topic. I think you landed, when did you land actually? Saturday? Friday, Friday night. So Friday night, over the weekend, I was i followed a couple of econ folks, these guys bow -tied bulls, and they were talking about, well, Monday's going to be a bad, bad day for the market. Black Monday. Black Monday. And that one thing they alluded to was something about a yen carry. The first time I'd honestly heard of it, it seems like it's an an investor savvy type What would you say, operation or scheme or strategy? Yeah, advanced strategy. Advanced strategy. Not really open to the little guy traders like us. Totally. And then Monday morning, we saw I think the worst day in the Nikkei since 1987. I don't know if I got the roughly pretty much. I heard something like that too. The worst day in the Nikkei stock market, everything went down.
Speaker: Things went crazy. at The US dollar exchange rate went from like 1 .50, high 1 .50s to like 1 .40 at one point. What was the peak? It was like 1 .60 yen to the dollar and yeah very recently. It went over 1 .60 a couple of times, one time when my dad was in the e ER r and um like on his death bed. kind of He's still alive, still good. But he was like, buy the yen right now. But yeah, I think it dropped down to 1 .40, right? ah Yeah, 1 .40. Yeah, and then it's I think Bitcoin prices also took a big dip. I think it went from like 65 -ish Bitcoin to ah right at the high 40s, maybe low 50s. And it's on its way back. But Joey, that's the reason we have you here today. I think you are a master's of economics from Cambridge University. Is that right?
Speaker: that's right i have a master's degree in macroeconomic research from the university of cambridge so i'll try to i'll weigh in here yep yep gonna ask you some econ related questions on the yankiri yep one time i remember we were in turkey and you were telling me like macroeconomics nobody can actually predict these things right or well you warranted something like no one really yeah Kind of like long story short and why I got bored with studying macroeconomics in the end is like, it was even after doing a master's degree degree, it was still confusing. I felt that every single economic paper that argued for one thing, there was like an equal and opposite famous person that wrote an economic paper saying the exact opposite is true. So it it was, it's honestly confusing. There's no right answers and the market changes all the time. So something that might have been correct in the 1970s.
Speaker: those models, they may or may not still apply to what's happening right now. So it it was very difficult to answer when people had questions about current events. ye And actually, before jumping into that, we've gotten a lot of inquiries this week from, on our website, AccuMart. People have been noticing the prices have been changing and people reached out saying, Hey, you know, I looked at this yesterday. It was a difference, 20 % lower today. What's going on? 20 % higher. 20 % higher, sorry. Short answer to Joey, why are these prices changing on the website?
Speaker: Yeah, short answer is, so if you look, we display two prices always on every listing. One is the big ones in whatever foreign currency, dollars, euros, et cetera, that price will fluctuate with the exchange rate. You'll also see the yen value of the house and that price will not change with the exchange rate. So these houses are in Japan. You know, I probably don't need to spell it out for our listeners, but these houses are in Japan and the seller is selling in yen. That is how you need to buy the house in yen.
Speaker: so there's no really locking in price for a house until you convert your money into yen and you have enough to buy the house so the big number that we show on our listings that changes every i we scrape the exchange rate several times a day actually so that price does actually change you know multiple times a day ah usually not by very much but given that we had such a big change in the exchange rate over the weekend a lot of our customers notice about a 20 % increase in prices across the board We did not change anything on our end. That is just a result of the exchange rate changing. And on every listing, you'll see the yen amount underneath. So keep an eye out for that. That's honestly the end of the day, what you need to get to the seller. We recommend folks use OFX .com to do larger transfers. and
Speaker: Some of our AkyoMart preferred agents can act as that broker and hold that money. So if you are in the purchase process, this hasn't been an issue until actually recently. It was kind of timing when you transfer a big bulk. And actually, when we did it for Bepu and Tokyo, we were monitoring. But I'd say in short, if you're happy with the price you see it at now, you're already mid -purchase process and you have the ability to make the exchange rate, just do it. It might get better. It might get worse. It's really hard.
Speaker: no one can play the game really right Yeah, the these are the exchange, the same exchange rates as when we bought the Beppu property a year ago. yeah And we thought we we timed the market perfectly. You know, the exchange rate only got more favorable after that, so but you know, no regrets. So we're still back to when we're at prices when me and Tage bought the house in Beppu and we thought it would be.
Speaker: The timing was excellent. It's still very good. We studied abroad in 2010. It was one US s dollar 75 yen. I'd say it made more of a story looking broad picture here. it' it's Still very good. Still very good. You can't afford anything in the US. it's It's still the same deal. It maybe has shifted a little bit here. But ah yeah overall, I'd say it's still very opportunistic time,
Speaker: yeah iregardless of the shift in the dollar to the end yeah But Joey, what the heck caused this? There's so many different butterfly effect kind of things. what do you you know I know you did some reading on it yesterday, but Masters of Economics from Cambridge youth University, Joseph Stockerman, what is your take on this? Here is my understanding. Again, with the caveat that macroeconomics is difficult, there's a lot of factors that go into it. So the yen carry is, or like any kind of currency carry is when you buy, when you borrow,
Speaker: money in one currency and convert it to another currency to invest in that second currency's stock market or however you want to invest it. So this is relevant for Japan because interest rates are so low. So what large institutional investors, the little guys like you and me, Takei, we don't, you know, as many listeners know, you can't get a mortgage in Japan. You can't borrow money in yen, but If you're a big hedge funds or governments yeah you can do this so it's really just the huge players that are involved in this yen carry but what they're doing is they're boring large amounts of yen. So to come in japan basically with interest rates close to zero for the past twenty years in japan.
Speaker: Pretty much free money if you have access to this. yeah Borrow a bunch of yen, convert it to dollars, so sell the yen, buy dollars, and then invest in tech stocks, AI stocks, treasury bills, whatever is making money in America. And just taking that spread, right?
Speaker: Taking that spread. Exactly. So that's what the yen carry is. So I remember Warren Buffett was doing a while ago. I remember he made like a huge investment. He invested in Japan. So he kept it in Japan. He made a bunch of it. I think Nikkei actually had some record growth maybe about a year ago or so. Really? He timed it.
Speaker: Yeah. So with all that happening, lots of people selling, you know, they borrow in yen, they sell the yen and then they buy dollars. That is, that interest rate spread is a lot of the reason why the interest rate, they sorry, the exchange rate was looking so good, right? Everybody's selling yen, everyone's buying dollars, the yen weekends, right? And if you're, if you're looking for property in Japan, your dollars go a long way. So that's the, that's what, that's the world we were in up until about this weekend.
Speaker: Okay, what next? Yeah, so where's the risk, right? That all sounds great for these and two institutional investors. Let's just keep going. So the risk, i look I'm not an expert on this, but this is the research I did when this happened, is the risk is oil. So Japan is the fifth largest importer of oil in the world.
Speaker: Third largest economy, fifth largest import of oil in the world, they import 97 % of all their oil. Given the Fukushima disaster in 2011, they use a lot of that oil to generate electricity. Understandable. So with, you know, I'm sure everybody that drives a car has noticed since COVID, gas prices has gone up.
Speaker: gas prices going up combined with a weakened yen, gas energy is expensive in Japan. Actually, this is not something that we've experienced personally because i I feel that, yeah, our energy bills have been quite low. But maybe if you're, you know, this is again, this is large players in the space. So this is industry, mostly we're talking about that's probably affected by changes in energy more than, you know, someone paying their electrical bill.
Speaker: Energy is getting expensive in Japan and the government is concerned about that. I think mostly for industries. So they decided to step in and make something happen. Your entire country is dependent on oil. Oil is getting more expensive. um They wanted to, you know, and I'm sure they also had concern about the week in yen, but I think it seems like energy was their main focus. but They tried a few things. So back in May, they raised interest rates by a tiny little bit, like a smidgen,
Speaker: Japan government cannot control oil prices, but what they have some levers they can pull to affect the exchange rate. And so that's where they're going after. Let's fix energy prices by going after the exchange rate. They tried to adjust rates a little bit, but with the amount of debt, household debt in Japan, everybody has mortgage there. It's very politically difficult to raise interest rates. It's and like inconceivable, actually. I was talking to some friends, they're like, whoa, if Japan Some of my friends who have loans, they're like, I'm like, Hey, these are adjustable rate mortgages, right? And they're like, Japan won't change, do this, or else they're really going to have people over. I think it's James that said that. And it seems like they're very conservative on raising the rates unlike the United States of America.
Speaker: But yeah, there that seems like they really mess up the population. right Yeah. and So that's the concern. So they, it it seems like Bank of Japan, their hands are tied with interest rates. They are not going to budge too much above 0 % rates. So what do they do? They try to use the only other lever they have to adjust.
Speaker: ah exchange rates, which is but you know the the mechanical method of buying and selling currency again. So the Bank of Japan holds a lot of dollars, assets. They have a bunch of Treasuries in the United States, so they are selling those Treasuries and buying yen. So they're selling, they're getting US dollars, selling the dollars and buying yen, trying to boost up the demand in yen.
Speaker: What's happened then is if, so that's sort of what happened, why this has an effect for the yen carry and eventually why exchange rates are going in the opposite direction is there's a lot of money in the yen carry, about $20 trillion, dollars which is 20 trillion involved. And actually the government of Japan owns a significant portion of that too. So it's the the actual Japanese government that was also involved in borrowing our own yen and investing it in the United States.
Speaker: But what happens with these type of, I think, I'm not an an institutional investor, I have not had personal experience here, but little changes go ah lot go a long way, right? If you have billions invested in something and the exchange rate fluctuates a little bit, you might pull out some of your investment or whatever. And that's what happens. So the Bank of Japan,
Speaker: started selling some of the treasuries, selling dollars, buying yen, the in the exchange rate adjusted a little bit, or they are able to keep it at least stable. But the large effect is that it spooked these large institutional investors, the whales, in the yen carry trade, and their um The loans that they took out in japan because the interest the exchange rate appear to be going in the other direction, they got scared they need to repay those loans in yen and as soon as the exchange rates are going in the opposite direction those loans become more expensive so they sold some of those.
Speaker: that was yen carry trade deals that they were doing and that is the process that seems to be snowballing at the moment more investors are getting spooked the exchange rate so so as more investors get spooked they sell their assets in america they sell their dollars they buy yen to repay those loans and it's having the same effect that the bank of japan was trying to do in the first place which was reverse the exchange rate and so the more people that exit this carry trade the exchange rate moves more in that direction, the more there is that Yang -Kirch rate becomes unprofitable, so more people sell. So it's this snowball effect of the exchange rate moving in that direction. Fixed exchange rate tank the stock market for the Nikkei, right? this sex How is that correlated? So they strengthened the exchange rate, right? So now the exchange rate is $1 to $140 -ish something.
Speaker: But what the Nikkei index went down something like 14 % or plus, right? Yeah, it's a good question about the Nikkei. I don't know too much about it. The story behind why the US stock market would crash makes more sense. A lot of people are had bought those stocks using money they had borrowed from Japan and as they sell it, the market crashes. Why the Nikkei was affected as well, I'm not exactly sure.
Speaker: The US stock market or so, or even going back to last week, I know what, there were some numbers on job and unemployment that came out and I think inflation came out. A couple of the US s based numbers started this domino effect. Is that right? I think the last Thursday, the jobs report came out very unfavorable and that's, is, yeah do you know anything about that? Yeah, it does seem like a few issues happened at the same time yeah that could have and as people.
Speaker: You know, the people that had invested in the yen carry could have also looked at the same, you know, the stock, the US stock market is already crashing. yeah They owe this money in Japan exchange rates, you know, just a few things contributed to investors making the decision to pull out their liquidate their stocks. Totally. Yeah. It's a, it's really like a crazy, everything.
Speaker: That can't go wrong, will go wrong at the same time. So it's I think jobs data, the speculation of a recession in the United States. President Powell is what the bow tie bulls call him. I think he said he's not budging on interest rates until September, but I don't know. There's a lot of weird, I don't understand these economic levers of inflation to yeah like it is I think the main takeaway I would say is that recently and again the caveat that I say when I talk about macroeconomics is these things change all the time and what is advice yeah or an explanation now may not be relevant in 20 years time but right now it seems that watch if you're interested in the exchange rate with Japan because you're interested in purchasing property there pay attention to interest rates that is how the changes are going to be affected and If Japan were to raise interest rates, for example, or the US were to lower interest rates, more investors are going to move money in different ways between the countries, very likely moving money back to Japan and away from America if either of those two things were to happen with interest rates, which would cause people to sell dollars by yen, which would push the interest rate, the yen higher, and make buying a home in Japan if you make your money in dollars more expensive.
Speaker: It was interesting, I was talking to a business coach and she was asking me like, all right, what's the what is real estate sales trending? and what What kind of trend do you guys see right now? And I was like, really hard. if We're looking at everything, everyone but Japan and how their countries are like affordability of housing is being affected. What are interest rates like? As an interest rate stays really high here in the United States that increases the demand for foreign buyers in Japan. And it really doesn't have to do with like,
Speaker: how je I guess it it still does with the exchange rate, but it's a really interesting market. I don't know. I'm assuming affordability around the world is getting harder. ah In Japan, it seems to be one of those gold spots where you you still can buy something for cheap. Yeah. supply again it Supply and demand. Yeah. So they also just have a lot of supply and little domestic demand. Well, in short.
Speaker: I wouldn't worry too much about the exchange rate. i Again, zooming out this 1 US dollar to 1 .40 yen is like absolutely crazy. Joey's spending the week in in Santa Cruz and we're walking around houses that are like 1 .5, 2 million minimum for something. you could like two million in japan will buy you like a turnkey compound anywhere you want in Japan, minus Tokyo and some of these kind of higher priced cities, but still an affordability problem in the United States I believe is the same and and still very appealing for Japan.
Speaker: yeah And one last note from the macroeconomic perspective is that the interest rates have stayed the same. So we got into this really cheap, really great interest exchange rates for buying Japanese property if you're American because of the interest rates. And those haven't changed. like that That fundamental advantage of the yen carry and the profitability of the yen carry is still there. This might just be a sort of short -term interim thing that the Japanese government, with the stock market crash, the Japanese government bank of Japan behaving this way.
Speaker: They're trying all these things, but the fact of the matter is the cause of those really good exchange rates is still there, so it might come back. Yep. Well, that was economics with Masters of Economics in Cambridge, Joseph Stockman. Thanks for coming on the show today. Thanks for having me. As a usual, this is a disclaimer. This is not financial or investment advice. We're not licensed Japanese real estate or brokers.
Speaker: We're just two regular people discussing this, so please do what you will with this information. But you know this has not changed anything for us, honestly. If anything, like it if it reduces foreign demand in Japan, and it's good for us. More deals. So we're really excited. We're looking at a couple. We're actually looking at a cool sauna.
Speaker: Sana cold -punched retreat in the woods down in Hiroshima. It's a really cool property Yeah, who knows anything about like inner Hiroshima like north of this like quite far north of the city Kind of in the mountain for us family knows anything about that you If you're listening and you are in Hiroshima or going around there let us know if you know anything about making custom saunas to we are really interested in making this kind of like a ah cabin retreat for ourselves and renting it out to folks who just want to, I say anti -Tokyo, like no people, woods, and just kind of Japanese food in isolation. That's the dream, right? Yeah, yeah, yeah. I'm personally excited for that type of property. All right, cool, Joey. Well, excited to have a couple more days. It's been a good few days. We're working up some, we're cooking up some good stuff here over on the Akiemart side, but thank you for listening. Thanks for having me.
