A senior strategist at Bank of New York Mellon is using the price of a Japanese fast-food staple to get an accurate snapshot of the yen’s weakness as the impact of the recent intervention fades.
Geoff Yu created the Katsu Curry Index as an alternative to The Economist’s Big Mac Index, arguing that an international price comparison for the pork-and-rice dish — rather than burgers — gives a better sense of how the yen’s retreat feels in Japan.
In the global currency market on Wednesday, one dollar bought about 159.05 yen. Yet according to Yu’s calculations, which account for the purchasing power of the Japanese currency as reflected in the price of curry dishes, one dollar should buy just 62.18 yen. That suggests the foreign exchange market is significantly undervaluing the yen. By comparison, the Big Mac Index, which is based on the price of McDonald’s hamburgers across countries, suggests the greenback should buy 80.30 yen.
“If the goal is to bring purchasing power in line with high-income countries, the index shows that the yen needs to be a lot stronger,” said Yu, who uses prices from CoCo Ichibanya, the world’s biggest curry-rice chain, with around 1,500 outlets globally.
While the Big Mac has been a global fast food staple for decades, it’s still consumed “far more in the West than in the East,” he said. “Something like curry rice would be much more popular as fast or comfort food in Asia.”
The yen is a focal point for the global FX market after Japanese and US authorities staged the most dramatic intervention in 15 years to pull the currency back from its lowest level against the dollar in four decades. It’s since surrendered half of its intervention-driven gains.
While a historically weak yen has made overseas travel and foreign goods eye-watering expenses for many Japanese, it’s also hitting their wallets at home as prices for meals, services and consumer goods rise.
“If the price of a katsu curry, or a bowl of ramen, becomes prohibitive in Japan, it will probably lead to growing calls for a policy change,” Yu said.
There are plenty of other alternative indexes based on purchasing power parity. The Tall Latte Index tracks the price of a Starbucks coffee around the world, while the KFC Index was developed to better capture PPP in Africa, where the Big Mac has a much smaller presence.