"Yen Plummets but Why Talk Curry? ... One Bowl Shows It's 159 Yen Now, Fair Value Is 62 Yen"

'Tonkatsu Curry Index' Emerges for Measuring Yen Value


New Purchasing Power Index Developed by BNY Mellon Strategist

Benchmarked Against 1,500 Outlets of World's Largest Curry Chain

"When the Cost of a Bowl Becomes Unbearable, Backlash Will Grow"

As the value of the Japanese yen has fallen to its lowest level in 40 years, a new index has emerged that measures the exchange rate using tonkatsu curry instead of the Big Mac.

Image of Tonkatsu Curry from Coco Ichibanya, a Japanese curry rice chain. Official website

On August 12 (local time), Yonhap News, citing Bloomberg News, reported, "Jeff Yu, chief strategist at BNY Mellon in New York, has devised and is utilizing an index that compares purchasing power across countries based on tonkatsu curry prices, inspired by the Big Mac Index published by The Economist."

The benchmark for this index is Coco Ichibanya, the world's largest curry rice chain, which operates around 1,500 stores worldwide. Yu explained, "Big Macs are still consumed much more in the West than in the East," adding, "In Asia, curry rice is far more popular as a convenience food."

The results calculated by the 'Tonkatsu Curry Index' differed greatly from the market exchange rate. On this day, one US dollar traded at around 159 yen in the international foreign exchange market, but according to this index, the fair value was set at 62.18 yen. Even compared with the Big Mac Index, which suggests 80.3 yen per US dollar, this indicates the yen is even more undervalued. Yu stated, "If the price of a bowl of tonkatsu curry or ramen in Japan rises to an unbearable level, there will be growing calls for a policy shift."

On the 3rd, a citizen passed by an electronic board displaying the exchange rate between the US dollar and the Japanese yen in front of a securities firm in Tokyo. Photo by AP Yonhap News

The yen, which fell to the 163 yen per US dollar range last month, rebounded to 155 yen per dollar due to coordinated intervention between the US and Japan. However, within less than two weeks, it gave up about half of its gains and slipped back down to around 159 yen. This intervention was regarded as the strongest measure in 15 years. It was the first time since 1998 that both countries jointly bought yen. The method was also unusual, with the New York Federal Reserve selling euros and buying yen through the euro-yen market, rather than the dollar-yen market.

The short-lived effect has been attributed to the revival of 'carry trade' strategies. This involves borrowing low-interest currencies to invest in higher-yield assets, and as long as the US-Japan interest rate gap remains wide, the incentive does not disappear. The yield on 10-year US Treasury bonds stands at 4.686%, well above the 2.846% yield on Japanese government bonds of the same maturity. Jasper Cole, a specialist director at Monex Group, said, "The intervention only scared the market but could not stop the fundamental law of finance that capital seeks the highest return."

Some interpret the real purpose of the US government's intervention as defending the US Treasury bond market rather than simply supporting the yen. The funds used to buy yen typically come from cash acquired by Japan selling its US Treasuries. If large amounts are released into the market, US Treasury yields will jump. By not touching its dollar assets, Japan was also being enabled to avoid selling off its US Treasuries.

US Treasury Secretary Scott Bessent has sought to keep rates down by filling funding needs with short-term Treasuries ahead of the midterm elections in November. With total national debt now reaching 123% of gross domestic product (GDP), the capacity for further exchange rate intervention is also shrinking.

As a result, market attention is focused on the Bank of Japan’s monetary policy meeting to be held next month. If the Bank of Japan widens the scale of rate hikes, the interest rate gap with the US will narrow, and the motivation for carry trades will diminish. Masahiko Lu, Senior Bond & Currency Strategist at State Street Global Advisors, called 160 yen "a political red line" and said, "If market movements become sharp or disorderly, further intervention cannot be ruled out, but it would only buy time, and ultimately the heavy burden will fall on the Bank of Japan’s September meeting."

This content was produced with the assistance of AI translation services.