Israel has seen a significant increase in the cost of living, particularly in Tel Aviv, where a McMeal now costs $20.90, marking a 71% rise since 2016. This increase is attributed to a combination of factors, including a strong shekel bolstered by the country's robust tech and defense industries, as well as supply disruptions. Zvi Eckstein, a former deputy governor of the Bank of Israel, noted that while the strong shekel raises costs in dollar terms, the primary drivers of Tel Aviv's high living expenses are domestic policies and supply constraints rather than just currency fluctuations.
The Israeli stock market has experienced a remarkable surge, jumping by about 50% in the past year, compared to a 20% rise in the S&P 500. This strong performance has led local investors to shift their long-term investments back into shekel-denominated assets, further strengthening the currency. However, the high cost of living in Israel is not solely a result of the strong shekel; it is also influenced by the centralized control of land by the Israel Land Authority, which manages over 90% of the land in the country. This centralization has led to a lack of market-driven development decisions, particularly in prime areas.
Additionally, the Israeli housing market has been affected by long-standing municipal preferences for commercial development over residential projects, contributing to the high cost of living. The World Trade Organization (WTO) data for 2025 indicates that Israel imposes an average tariff of 7.5% on agricultural imports, in stark contrast to just 0.1% for non-agricultural goods. This tariff structure further exacerbates the cost of living for residents.
In contrast, Japan has benefited from a weak yen, which has made it an attractive destination for tourists. The yen has lost 51% of its value against the dollar since 2012, leading to lower prices for goods and services in Tokyo compared to cities like New York and Zurich. While this has made Tokyo a bargain for travelers, it has not translated into higher wages for local workers, who earn significantly less than their counterparts in Zurich. The aging and shrinking population in Japan may drive the implementation of AI to address labor shortages, particularly in manufacturing and robotics sectors.
