A handful of yen – a win for tourists to Japan as retail prices fall

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The cherry blossom season in March is always a popular time for tourists to visit Japan. This year, however, that may not have been the only reason why more than 3.1 million visitors – a single-month record according to Japan’s National Tourism Organization – visited the Land of the Rising Sun.

Foreign tourists make the most of their harder currencies, such as the euro and the dollar, to benefit from a favorable exchange rate rate with Japan’s weaker currency.

Although the fall of the yen hurts Japanese households, visitors to Japan benefit from the exchange rate difference, according to the AFP news agency.

Average spending per person by foreign tourists increased by 52% between January and March this year, the agency reported, compared to the same period in 2019. That was the last year of comparison due to the Covid-19 pandemic.

A 1,000 yen ramen cost €8 euros at the time, compared to €5.8 euros at the beginning of the week. And a luxury watch that cost 5,600 euros in 2019 is now ‘only’ worth around € 4,000. Tourists can also benefit from tax reductions upon presentation of their passports.

An advantage for both foreign tourists and large local companies

A weak yen is often seen as a boon for ‘Japan Inc’ as it helps make commercial exports, such as Nipon’s car exports, cheaper abroad and boost profits when income is brought home from abroad.

At the same time, however, this increases the costs of raw materials, food and fuel, adversely affecting farmers who import fertilizers to small manufacturers who rely on spare parts from China.

Small businesses employ the most workers in Japan and cannot afford to pass on rising costs by raising their selling prices in a competitive market.

What is the future of the yen?

EUR/JPY extended its losses for the third straight session, trading around 164.60 on Friday European session. The Japanese yen (JPY) strengthened on Friday following a possible intervention by the Japanese government, which was the second such incident in a week, according to Reuters.

On April 29, the currency plummeted against the dollar to 160.17 yen, a level last reached in 1990. Later the currency recovered.

On May 1, a sharp rise took the Japanese currency to 153.04 yen per dollar, although it later fell back slightly. Yet the Japanese currency was still 2.08% higher at the end of trading that day, a big jump in a market where daily swings are often limited to a few tenths of a percentage point.

Data from the Bank of Japan (BoJ) shows that Japanese authorities spent about JPY3.66 trillion on supporting the yen as of May 1. Earlier this week, the Japanese Ministry of Finance also intervened in the market, potentially investing around JPY 6 trillion (€36 billion).

According to Bloomberg, Masato Kanda, Japan’The US’s top currency diplomat declined to directly confirm the intervention but indicated that the Treasury Department planned to make related data public by the end of the month.

Despite the sharp decline in the Japanese currency, the Japanese central bank left its policy rate unchanged at the end of April, between 0% and 0.1%, and maintained a rather dovish tone.

This was an expected breakthrough after the BoJ started normalizing its monetary policy in 2013 Marchwhen it ended its negative interest rates, the most spectacular tool in its ultra-accommodative policies.