How do I respond to a peer that wrote this? According to the latest Economist Big Mac Index (July 2025), the Japanese yen is significantly undervalued against the U.S. dollar. The average price of a Big Mac in Japan is about ¥450, which, at current exchange rates, is roughly $2.90, compared to $5.69 in the U.S. This implies the yen is undervalued by around 49% relative to what purchasing power parity (PPP) would suggest. One likely reason is Japan’s persistently loose monetary policy. While the U.S. Federal Reserve has kept interest rates high to combat inflation, the Bank of Japan has maintained ultra-low rates and continued yield curve control, making Japanese assets less attractive to foreign investors and keeping the yen weak. Additionally, Japan’s trade balance has been pressured by high energy import costs, which further weighs on its currency.
Answer (1)
You can respond in a way that acknowledges their point, adds value, and invites further discussion.Example ReplyThat’s a clear and well-explained summary of the Big Mac Index findings! I agree that Japan’s loose monetary policy and high energy import costs are big factors in the yen’s weakness. I’d also add that cultural and corporate factors—like Japan’s long-standing low-inflation mindset and slower wage growth—might be reinforcing this undervaluation. Do you think the Bank of Japan will eventually raise rates, or will they continue prioritizing growth over currency strength?
