CPI Day and What Katsu Curry Says About the Level of the Yen

A senior strategist at Bank of New York Mellon has devised a new index to gauge the relative weakness of the Japanese yen, using the price of a popular Japanese dish. Named the Katsu Curry Index, Geoff Yu's creation is an alternative to The Economist's Big Mac Index. Yu argues that comparing the price of a pork and rice curry dish, rather than a burger, provides a more accurate sense of how the yen's decline feels in Japan.

On Wednesday, one dollar could buy approximately 159.05 yen in the global currency market. However, Yu's calculations, which take into account the purchasing power of the Japanese currency as reflected in curry dish prices, indicate that one dollar should only be able to buy 62.18 yen. This discrepancy suggests that the foreign exchange market is significantly undervaluing the yen.

In comparison, The Big Mac Index, which uses McDonald's hamburgers as a benchmark, suggests that the greenback should be able to purchase 80.30 yen. Yu points out that while the Big Mac has been a global fast food staple for decades, curry rice remains much more popular in Asia. He believes that something like katsu curry would be far more prevalent as a fast or comfort food in the region.

The yen has been a focal point in the global foreign exchange market following Japanese and US authorities' intervention to pull the currency back from its lowest level against the dollar in four decades. However, the yen has since regained only half of its intervention-driven gains. Yu notes that while a historically weak yen has made overseas travel and foreign goods expensive for many Japanese, it has also led to rising food, service, and consumer prices at home.

He warns that if the price of katsu curry or a bowl of ramen becomes unaffordable in Japan, there may be growing calls for policy changes.