By Dako & Jay
We have a FIRE number. It’s in dollars, because every account we own is in dollars. Two 401(k)s. A taxable brokerage of US-listed funds and US stocks, a traditional IRA, a Roth, an HSA, a high-yield savings account. The kids’ education accounts and a cash cushion that helps us sleep. Years of contributions, all pointed at one figure.
What we’ve never done is translate that figure into yen.
Which is a strange gap for a household that might end up living in Japan, part-time or full-time or in some rotation we haven’t designed yet. The number we’ve been aiming at answers a question we might not be asking by the time we get there. So this post is us pulling on that thread, and finding that a FIRE number isn’t just a figure. It’s a figure with a currency stapled to it, and the staple matters more than we’d assumed.
The number has a passport
Start with what changing the denominator does. On August 14, 2026, a dollar bought 159.21 yen. In October 2011, at the post-war peak for the yen, a dollar bought somewhere in the 75-yen range, and the Bank of Japan intervened to stop it.
Same portfolio. More than double the yen, or less than half, depending which end of that window you retire into.
The recent stretch has all been on the weak-yen side. The yen crossed 143 in September 2022, prompting Japan’s first intervention since 1998. It hit the 160s in the spring of 2024 and 161 that July, the weakest in roughly 38 years. Then 2026 did it again: past 160 in March, past 161 in June. If your assets are in dollars and your future spending is in yen, this has been the friendly direction. That’s exactly why it’s worth staring at. A run of good luck feels like a plan right up until it stops.
We can’t forecast this, and we won’t pretend our household has an edge. What we can do is stop treating the exchange rate as a detail that gets sorted out later, and start treating it as a variable sitting inside the number itself.
Jay here. My position on the exchange rate is simple and it hasn’t moved. The yen risk is always there, in both directions, and I don’t want us building a plan that quietly needs it to behave. Dako is the one who can read the Japanese source material, so what I bring to this is stubbornness about the assumption. The part I’ve become genuinely interested in is where currency meets Japanese tax, because that’s the piece I can see affecting a monthly budget rather than a spreadsheet.
The 4% rule speaks dollars
This is the piece I hadn’t examined closely enough.
The 4% rule comes from William Bengen’s 1994 article in the Journal of Financial Planning. He ran historical US data back to 1926, a 50/50 mix of the S&P 500 and intermediate-term US government bonds, and found that the worst starting year still supported about 4.15%. The Trinity Study followed in 1998, also on US stocks and US bonds. Both are excellent work. Both are also a description of one country’s twentieth century.
Wade Pfau tested the idea across 20 developed countries using the Dimson-Marsh-Staunton dataset from 1900 to 2015. With a realistic 50/50 allocation, the 4% rule didn’t survive in any of them. The US came closest at 3.94%, Canada right behind at 3.96%. Some countries’ retiree cohorts, Japan’s among them, landed near 0.27%.
Now, that research measures a different risk than ours. Pfau was asking what happens if you invest in your own country’s market and spend in your own currency. Our situation stacks a second layer on top: US market returns funding Japanese living costs, two things that don’t move together and have no reason to.
I looked for research modeling that specific mismatch and came up empty. There may be good work out there I didn’t find. What I’m confident saying is that the number most of us treat as a law of nature was measured in one currency, in one country, and we’ve been quietly assuming it travels.
What a yen budget actually has to cover
The obvious move is to build a Japanese budget and convert. It’s the right instinct, and it misses two costs that don’t exist in the American version.
For scale: Japan’s Family Income and Expenditure Survey put average monthly consumption spending at ¥314,001 in 2025 for households of two or more. Working households came in at ¥346,297. Those are national averages across every kind of household, not a retirement budget for anyone in particular. They’re a real anchor, and they’re rising: up 4.6% in nominal terms year over year. Japan’s consumer prices rose 3.2% on average in 2025, after 2.7% in 2024, which is the same neighborhood as the US, where December 2025 came in at 2.7% year over year. So much for the idea that Japanese prices don’t move.
Then the first cost that surprised me. National Health Insurance premiums in Japan are largely income-based. The main component is calculated from your previous year’s income after a ¥430,000 basic deduction, joined by a per-person charge, at rates each municipality sets for itself. There’s an annual cap, and the details differ depending on where you live. But the structure has a consequence for anyone drawing down a portfolio: a year in which you realize a large capital gain is a year that sets next year’s health insurance bill. Sell a big position, get a bigger premium twelve months later. Which turns the timing of a sale into a health care decision.
The second cost is age-shaped and points the other way. Once you’re 70 to 74, the standard patient share of medical costs in Japan drops to 20%, and from 75 it’s 10%, with higher shares for people whose income looks like a working person’s. A yen retirement budget isn’t flat across the decades. It has a step down in it, and a step down that depends on how much income you’re generating.
The tax nobody puts in the spreadsheet
This is the one Jay flagged, and it’s the piece a dollar-only FIRE calculation has no line for.
If you’re a tax resident of Japan holding dollars and you convert them to yen, Japan treats the exchange gain as taxable, categorized as miscellaneous income. Holding the dollars isn’t the trigger. Watching the rate move isn’t the trigger. The conversion is, according to the National Tax Agency’s own guidance, and converting into a third currency counts too.
Sit with that for a second in the context of a dollar-funded retirement in Japan. Every time you move money across to pay for groceries and rent, you’re potentially realizing a gain measured against whatever rate applied when you acquired those dollars. It’s not the same as the 20.315% that applies to your listed stock gains and dividends as a Japanese resident, which is its own set of rules. It’s a separate line item that exists purely because your assets and your groceries are denominated differently.
The US has its own version, and it’s much gentler: under section 988, a personal foreign currency transaction is ignored if the gain is $200 or less. It’s a cliff, though, not an allowance. Clear $200 and the whole gain is on the table, not just the excess.
I’m deliberately not going to tell you how this plays out for a specific household across a specific year. It depends on tax residency, on which country’s rules reach you, and on facts that we’ve written about separately and still haven’t resolved for ourselves. One thing is worth knowing up front if you’re the Japanese national in a couple like ours. That non-permanent resident treatment, the one that softens the first years in Japan for a foreign national, doesn’t apply to Japanese citizens at all.
What we can actually do about it
Here’s where I’d love to describe our elegant currency hedge. We don’t have one. What we have is a shorter list of illusions.
The instinct is to hold some yen-denominated assets so the two sides of the ledger move together. For a US person that instinct runs straight into a wall. Japanese mutual funds, ETFs, and REITs are PFICs to the US tax code, and a lot of Japanese brokers either won’t open accounts for US persons or won’t let them trade US-listed funds. Our own contact with that world is a sliver of Japanese individual stocks in an old account we can’t trade in. Well under half a percent of the portfolio, and stuck there. US-listed products do exist that track the yen directly or hedge yen exposure out of Japanese equities. Whether any of them belongs in a specific plan is a question for someone who knows that plan.
So the honest version of our hedging strategy is knowing which numbers move. Three of them, as far as we can tell. The exchange rate applied to whatever we convert. The premium and tax consequences of when we realize gains, not just how much. And the withdrawal rate itself, which we’ve been borrowing from a study about a country we might not be living in.
Jay here, one more time. What changed for me isn’t the math, it’s who has to hold it. I don’t read Japanese, so anything administrative over there runs through Dako by default. A retirement in which the tax treatment of buying yen shows up in the monthly budget is a heavier version of that default, and it lands on one of us. Whatever we decide about the number, I don’t want the answer to be that she does the currency and I do the shrugging.
We still don’t have a yen figure. What we have now is the knowledge that our dollar figure was never the whole answer, and a much better set of questions to bring to someone qualified before we commit to either country.
FAQ
Do I need a different FIRE number if I might retire in Japan?
You need to know which currency your number is in, at minimum. A dollar-denominated portfolio funding yen expenses is exposed to a variable a US-only retirement doesn’t have. The exchange rate has moved by more than a factor of two within the last fifteen years.
Does the 4% rule work in Japan?
It was derived from US market history, so it isn’t a universal constant. International research covering 20 developed countries found that a realistic 50/50 portfolio didn’t support 4% in any of them over the 1900 to 2015 period, with Japan’s worst cohorts far below that. Treat 4% as a US-specific starting point, not a global one.
Is converting dollars to yen a taxable event?
For a tax resident of Japan, an exchange gain is generally recognized when you actually convert, and is treated as miscellaneous income. Holding the foreign currency isn’t the trigger. On the US side, personal currency transactions are excluded if the gain is $200 or less, and fully taxable above that. How both apply to you depends on your residency, which is where a cross-border professional earns their fee.
This article is general information about currency, retirement planning, and US and Japanese tax rules, not tax, legal, or investment advice. Nothing here recommends any security or currency. Please talk to a qualified cross-border professional before acting, and see our Disclaimer for details.