November 24, 2022
  • November 24, 2022

Hopes rising for win-win effect of inbound tourism in Japan, weak yen

By on September 18, 2022 0

Passengers of international flights arrive at Haneda Airport in Tokyo on September 7, 2022. (Kyodo)

TOKYO (Kyodo) — Japanese policymakers expect a further reopening of Japan’s borders to overseas visitors to breathe new life into inbound tourism that had been hit by COVID-19 travel restrictions.

The hope is that a weaker yen will be an additional boost, providing a win-win situation for overseas tourists, who would be forced to splurge by taking advantage of the currency effect, and for Japan, where the negative side of the decline of the yen, especially against the US dollar, has become all the more visible.

Japan raised its daily entry cap on arrivals to 50,000 from 20,000 in early September and began accepting foreign travelers on tour without a guide in a further easing, albeit at a gradual pace, of its safety measures. COVID-19 border control criticized as too strict.

Amid growing calls for more easing, on par with other advanced economies in the Group of Seven, the government is considering scrapping the daily entry cap even as the number of new coronavirus cases remains high.

The coronavirus pandemic has hampered Japan’s efforts to boost inbound tourism as an engine of economic growth, and it remains unclear how quickly foreign tourists will return. Japan ranked first among the best travel destinations in the World Economic Forum’s Travel and Tourism Development Index in 2021, despite the country being closed to foreign tourists.

If more restrictions are removed, including those on individual and spontaneous travel, as well as the daily entry cap on arrivals, Japan is expected to see spending by inbound tourists recover to around 2.5 trillion yen (17, $5 billion) in one year, about half the pre-pandemic level in 2019, according to economists at SMBC Nikko Securities Inc.

This is partly because a weaker yen makes outbound travel to Japan cheaper and stimulates appetite for spending. Since the Japanese currency is trading above 140 against the US dollar, a traveler is estimated to spend around 190,000 yen on a trip, up around 20% from around 160,000 yen in 2019 before the pandemic, when the currency was around 109.

“Past data shows that when the yen weakens, overseas tourists tend to increase their spending while in Japan on cosmetics, souvenirs and other items,” said Naoto Sekiguchi, junior economist at SMBC Nikko Securities.

Still, the recovery in the number of inbound tourists is expected to be slow, given that it will likely take longer for those from China to return due to strict anti-virus restrictions from Beijing, which has a “zero-COVID” policy. according to industry observers. .

Before the COVID-19 outbreak, the winds were apparently blowing in favor of Japan. A record 31.9 million tourists visited Japan in 2019, with over 2 million visitors per month. The monthly figure for July this year was 144,500, according to Japan’s National Tourism Organization.

As more Japanese consumers feel the pinch of accelerating inflation, growing criticism that the weak yen is the culprit is something unwelcome for Prime Minister Fumio Kishida.

He supported the Bank of Japan’s efforts to maintain an ultra-low interest rate policy and achieve its 2% inflation target.

“It is important to strengthen our purchasing power by promoting agricultural exports and inbound tourism…to reap the merits of a weaker yen,” Kishida said at a government group meeting on Wednesday.

The Japan Association of Business Executives is urging the government to resume accepting individual travel and allowing short-term visa-free visits while removing the entry cap.

“It will become difficult to capture inbound demand this winter, and only the negative impact of the weak yen on the economy will be noticed” unless travel restrictions are lifted, the group said, adding that a recovery in international travel is much slower than in other G-7 countries.

The yen fell near the psychologically important 145 line on Wednesday, which apparently raised the alert level of Japanese monetary authorities and prompted intensified warnings of direct intervention to avoid further decline.

The US Federal Reserve is expected to raise interest rates further to curb soaring inflation, while the Bank of Japan is unlikely to budge.

The policy options for the government appear increasingly limited to directly respond to the yen’s declining trend, as the dollar has also strengthened overall against other currencies.

Many market participants believe that a direct intervention by the Japanese authorities to buy yen against the dollar would still be improbable and inefficient.

Under such circumstances, a recovery in inbound tourism would help improve the current account balance and affect the dollar-yen pair as demand for buying yen will increase, economists say.

If the travel surplus — that is, the amount of money spent by foreign travelers in Japan was greater than that spent by Japanese overseas — recovers to pre-pandemic levels by about 3 trillion yen per year, this would reduce the dollar-yen pair by about 2 yen, according to economists at Daiwa Securities Co.

“It may be lower than the roughly 30 yen (dollar gain) seen so far this year, but inbound tourism will still have some impact on the dollar-yen,” said Toru Suehiro, senior economist at Daiwa Securities. .

“The dollar has been bought, not only against the yen but also against other currencies. The main reason is the widening of interest rate differentials, but it also reflects the strength of the American economy,” said Suehiro. “If the Japanese economy can draw strength from inbound tourism, that would also help ease the selling pressure on the yen.”