Frugal Japan
Living frugally in an expensive world

Banking in Japan is a bit of a mystery to most foreign residents. Most of us have a bank account or two, or a Post Office account as well – ones that we use mostly for the convenience of receiving our salaries, paying our bills, and storing our money in a location safer than a shoebox or a mattress. With interest rates so low for regular Japanese bank deposits (0.01% usually, slightly higher for certificates of deposit, or CDs), it might seem that there are few domestic options for saving money, particularly in a currency other than yen.

Foreign Currency Deposits

However, low interest rates have brought about a bit of a boom recently in high-interest ‘gaika yokin,’ or foreign-denominated currency deposits. Most of the major ‘city banks’ (Mizuho, UFJ, Tokyo Mitsubishi, and Sumitomo Mitsui) offer choices on foreign currency deposits, and it is relatively simple to set up a foreign currency term deposit or CD.

There are two main options: you can choose either a lump-sum time deposit at a special interest rate (i.e. set up a one-year term CD in dollars at 2 percent annual interest), or a ‘dollar-cost averaging’ type of account where you set aside a set amount of yen each month at market rates . Type A is called a ‘gaika teiki yokin’ (foreign-currency term deposit, very similar to a certificate of deposit), while Type B is called a ‘gaika tsumitate yokin’ (or monthly-withdrawal foreign-currency term deposit). Usually the term for Type B accounts is also set.

Handling Fees

The major thing to consider with these types of accounts is that, while they do offer attractive interest rates (some as high as 10 percent annually on a one-month term account

Foreign-denominated currency accounts work best if you actually have plans to USE the non-yen currency at some point in the future: you can withdraw the funds as traveler’s checks for trips home, or use the account to save money in your home country currency for future investment. Exchanging the money into yen is where the possibility of losses (or gains) arises.

Break Even Point

Another important point is to calculate your ‘break even’ point in terms of forex losses or gains. If, for example, you put 1 million yen into a 2-percent-annual-rate US dollar account for one year at 105 yen (plus 1 yen/$ handling fee for one-way transaction), the US$ value of your account is $9433.96. Your yearly interest would amount to $150.94 ($9,433.96 X 0.02 (2 percent interest annually) X .80 ). In total, the dollar value of your 1 million yen in these terms is $9,584.90 (US$ principal of $9,433.96 + $150.94 in interest). Should you decide to exchange your funds back into yen at 115 yen/$, you would recieve a net forex gain of around 92,678 yen (including fees). However, should the yen strengthen to 95 yen/$, you would see a relatively equivalent loss. Your ‘break-even point’ (including fees) in this scenario is 105.33 yen/$. Your banker should be able to aid you in this calculation: ask for the “soneki bunputen” (break-even point) forex rate (kawase reeto).

Foreign Currency Deposit Options in Japan

Citibank
http://www.citibank.co.jp
Citibank has long been a well-known choice in the foreign currency deposit market. The bank offers one-year interest rates of 1.75 percent on US dollar accounts, 2.45 percent on Australian dollar accounts, 0.50 percent on euro accounts, and 2.30 percent rates on British pound- denominated accounts. It’s fees are mid-range (2 yen per two-way transaction for each currency unit), and you also have the option English-language service (although I’ve heard mixed reports about their customer service.)

Sony Bank
http://moneykit.net/ (Japanese only)
This online bank offers 24-hour access to your account, great interest rates, plus some of the most reasonable handling fees in the business. It’s 2.63125 percent US dollar account (for accounts less than $10,000) charges only 0.50 yen/$ per two-way transaction. Its Australian dollar account boasts 4.43250 percent interest and 0.50 yen/AU$ fees, and 3.601 percent for British pound (0.50 percent/pound). The disadvantages: Sony Bank only offers online/telephone service, and its service is in Japanese only.

Some information gathered from the Fuji Sankei Group Living free newspaper.

© 2005 Wendy J. Imura.