Stronger yen could slice into off-base buying power
YOKOSUKA NAVAL BASE, Japan — The new Japanese government appears more comfortable with a strong yen, which could weaken off-base buying power for servicemembers already bracing for a drop in their paychecks.
A strong yen is good for Japan, newly appointed finance minister Hirohisha Fujii said Wednesday when the Democratic Party of Japan assumed power. Fujii also said the government would be unlikely to attempt to intervene and weaken the yen.
The net effect of a strong yen on servicemembers is that it continues to cost more dollars to buy off-base goods and services, even as cost-of-living allowances are set to begin tumbling.
Starting Oct. 1, COLA will drop slowly at 11 locations in Japan with each paycheck until the end of the year, according to an August memo from the Defense Department’s Per Diem, Travel and Transportation Allowance Committee.
While a strong yen hurts Japanese export sales by making goods like cars and electronics more expensive in the United States, it also allows Japanese citizens to buy cheaper imports.
Economists say the DPJ’s anticipated victory during the past couple of months has already influenced the yen, which is trading at a seven-month high of about 90 yen to the dollar.
“Fujii’s statement for allowing a stronger yen may further strengthen the yen,” said Yuji Kameoka, a senior economist in charge of currency exchange at the Daiwa Institute of Research.
The strong yen hurt sales and led to record losses for Japan’s export-dependent companies such as Sony and Toyota during the past year, which led some to call for the former government to take action. However, Fujii has stated his philosophical opposition to government attempts to weaken the currency.
The depth of the COLA drop varies based on location, rank, family size, accommodations and other factors. For example, the average sailor at Naval Air Facility Atsugi can expect to receive $150 per month less by the end of the year as the new price index takes effect, according to an Atsugi news release.
COLA will drop the most for servicemembers in Okinawa, Yokota, Iwakuni, Misawa and Yokohama, according to the new price index. Servicemembers can calculate their current COLA at http://www.defensetravel.dod.mil/perdiem/.
The baseline rate was lowered because the Retail Pricing Survey conducted earlier this year showed prices for common goods and services in the States rose relative to those in Japan. COLA is meant to even out the disparity when prices in a foreign country are higher than those in the United States.
However, while the annual COLA rate is falling, the rate per paycheck can be adjusted upward if the yen strengthens.
In January, the yen was at 87 against the dollar before falling to an April 7 low of 100.74 to the dollar. The commercial rate moved to about 90 to the dollar during the past week. The retail rate at military and off-base banks is generally two or three yen lower than the commercial rate.
The government and Fujii hope that a government economic stimulus and the strong yen will allow Japan to spend its way out of recession, economists say.
Nevertheless, they may have to reassess their policy if the yen strengthens too much, said Yoshikiyo Shimamine, chief economist at Dai-ichi Life Research Institute. “Even for Fujii … when yen reaches a level of 87 yen to the dollar as it happened in January, it would be too high,” Shimamine said.
Shimamine warns that the dollar could fall sharply below 90 yen if the U.S. economic downturn worsens. Previously, simultaneous weakness in both economies canceled out major shifts in the dollar-yen exchange rate, he said.
In recent days, traders are buying yen and selling dollars at the same time, which is fueling the yen’s strength.
Stars and Stripes reporters Hana Kusumoto and Chiyomi Sumida contributed to this story.