Take advantage of cheap yen by shopping around

Currency's decline has made Japan an attractive destination, but the rates on offer can vary

PUBLISHED : Monday, 03 June, 2013, 12:00am
UPDATED : Monday, 03 June, 2013, 1:18am

Holidaymakers looking towards Japan as a destination this summer should think ahead when it comes to currency exchange.

The yen's 19 per cent decline against the US dollar in six months means this could be a good time to purchase foreign exchange for the trip, even if you're not planning to embark for several weeks.

Swapping from Hong Kong dollars into yen at these levels would essentially lock-in the depreciation of the last few months, although it could also mean you end up out of pocket if the Japanese currency continues its slide against leading currencies.

Buying yen now makes sense according to some foreign exchange analysts, who say the currency is deeply oversold and likely to strengthen for a while.

The yen could even retrace a significant percentage of its recent slide if Japanese authorities indicate they're having second thoughts about plans to foster inflation through radical monetary easing, according to Daily FX currency analyst David Song.

The rebound "may evolve into a large reversal should we see the Bank of Japan strike a less-dovish tone for monetary policy," Song said in a research note.

Many analysts don't believe the rebound in the yen will be anything more than a temporary bounce, saying the Japanese currency will eventually revert back to a weaker footing as policymakers maintain a focus on reaching a 2 per cent inflation target.

UBS economist Daiju Aoki in Tokyo believes the weakening trend will last for three to five years, but says the currency is likely to stabilise for a while before another softening sets in.

"I think the level of the yen to the US dollar will remain close to 100 for this year, as I do not expect the Bank of Japan to do further easing," Aoki said.

Meanwhile ABN Amro forecasts the US dollar will buy 110 yen by the end of June.

Whenever you plan to swap into yen, be prepared to shop around to get the best deal at forex vendors in Hong Kong.

Bank of Communications appears to have one of the best rates on offer, but some of the advantage is eroded by transaction costs. At a flat rate of HK$100, the bank has the highest cost of transaction of all financial institutions surveyed by Money Post.

Once the charges were factored in, Bocom would convert HK$1,000 into just 11,664 yen, the second lowest rate out of the seven providers surveyed, according to exchange rate calculations on May 27.

By contrast, Travelex does not levy any charges, meaning HK$1,000 would buy 12,422 yen, one of the better deals on offer.

The best overall deal was offered by Dah Sing Bank, with HK$1,000 buying 12,870 yen. There are no additional charges, but the bank will only change money for account holders.

Meanwhile, independent moneychanger Sun Hing Foreign Currency Exchange, on Cleverly Street, Sheung Wan, had the best deal available to anyone, with HK$1,000 buying 12,658 yen.

It is worth checking if your own bank has any special deals, as institutions often waive charges for account holders.

For example, HSBC does not charge its Premier Account holders to change money. As a result, HK$1,000 can be converted into 12,890 yen - the highest rate out of the groups looked at once charges were waived.

Finally, when buying foreign currency, it is important to pay attention to the rate at which an institution will convert it back into Hong Kong dollars - the so-called bid offer spread - as the difference between this and the rate at which you bought the currency can be quite big.

Travelex had the biggest bid offer spread, selling yen at a rate of 12.42 yen to HK$1, but buying it back at a rate of 13.7 yen to HK$1 - a 10 per cent difference.