A bowl of curry in Tokyo just did something the currency market couldn’t — it exposed the yen’s real exchange rate. Price the same katsu curry set in Tokyo against dollar terms elsewhere, and the “fair” dollar-yen rate comes out to about ¥62. The Big Mac Index — the classic version of this trick, running since 1986 — puts it closer to ¥80. The actual market rate this month: around ¥159. However you slice it, the yen is trading at a steep discount to what it should cost based on what it actually buys (Bloomberg).
That gap between the “fair” rate and the market rate is what real exchange rate measures. The number on a banking app — 159 yen to the dollar — is the nominal exchange rate, just a ratio between two currencies. The real exchange rate adjusts that ratio for what each currency actually buys at home, using a basket of everyday goods as the yardstick. Curry works better than a burger for this in Japan, strategists argue, because curry — not fast food — is what Japanese households actually eat several times a month. The same logic has produced a latte index and a fried-chicken index elsewhere. None of these predict where a currency is headed next. They’re cost-of-living rulers, not trading signals.
Korea has its own version of the same gap, minus the curry. Bank of Korea data shows imported beef prices rose 30% in dollar terms over the past five years — but 60.6% once converted into won, as the currency slid from roughly 1,100 to 1,450 per dollar (Korea Herald). That’s the real exchange rate showing up at the meat counter: the same imported good, priced twice — once in the currency it was bought with, once in the currency it was sold in.
Here’s the part that trips people up: even when the nominal rate reverses, the real one doesn’t snap back with it. Prices that rose fast when a currency weakened tend to fall slowly, if at all, once it strengthens again — retailers who absorbed margin loss on the way up recover it first, before passing anything back down. That’s a separate mechanism from the currency gap itself, but it’s why a stronger won or a “fair value” yen rarely shows up at the register on schedule.
The US-Japan intervention this summer pulled the nominal yen off its 40-year low without anyone selling Treasuries — a genuinely clever piece of financial engineering. But intervention moves the number on the screen. It doesn’t reprice the curry.
Not advice. Just how I see it.