Limiting the headache that comes from calculating foreign exchange gains

[preciousklay]

Based on the Guide to the Taxation of Foreign Currency and my earlier question I'm trying to figure out how to minimize/eliminate the headache of calculating foreign exchange gains.

Given a taxpayer in Japan who is investing in securities (stocks, ETFs, mutual funds, etc.) in a currency other than yen (e.g. US dollars). If they hold any amount of that currency in any of their accounts (or in cash), the following actions would trigger a foreign exchange gains tax (assuming the exchange rate moved in their favor):

• Buying any security in the given currency (e.g. buying Apple shares or Vanguard ETFs). Even if they just converted the money from yen to do this, they would need to calculate their average acquisition price of the foreign currency and compare that to the exchange rate at the time of purchase (which will likely be non zero if they hold the currency elsewhere).
• Buying anything in the currency (e.g. online or on a vacation) - similar to the above, using the average acquisition price of the foreign currency and compare that to the exchange rate at the time of purchase
• Converting the currency to another currency (e.g. back to yen)

Calculating the average acquisition price of the foreign currency is difficult (e.g. stocks paying dividends in that currency also change it).

My understanding is that the only way to minimize the headache that comes from this is to keep the amount of the foreign currency held by the person at zero, e.g.

• When a dividend is paid in that currency, spend it immediately (e.g. buy stocks/etfs), or convert it to yen
• When spending the currency online/on a trip, use a card that converts it on the spot (e.g. a Japanese debit/credit card, or Revolut/Wise but without a balance in that currency)
• When investing, limit the time between converting yen to a foreign currency and spending that, or invest from yen directly (if the brokerage supports currency conversion and purchase in one step)
• When a stock is sold, either reinvest into something else immediately, or convert it to yen

Assuming one manages to keep their holdings of the foreign currency at zero and only hold the currency for minutes at a time between the above transactions, are they free of any tax obligation related to foreign exchange gains?

 

[kristhuy]

@preciousklay

Assuming one manages to keep their holdings of the foreign currency at zero and only hold the currency for minutes at a time between the above transactions, are they free of any tax obligation related to foreign exchange gains?

Yes. Pursuant to guideline 57の3―2, you can generally ignore the disposal of foreign currency that is held only temporarily as part of an asset->JPY or JPY->asset transaction.

Using MMFs is another good strategy for avoiding foreign exchange calculations, as @zinga327 suggested.

 

[zinga327]

@preciousklay Are you using a tokutei account? If the foreign currency is USD, I personally use USD MMFs for the first, third and fourth point which limits the headache of calculating fx gains and losses. I assume that for other currencies as well, if you could buy MMFs like funds which could serve the same purpose. On Rakuten, I can also directly use the MMFs to buy US stock in USD without having to sell and change to currency.