Japan hopes surge in foreign tourist spending will offer upside to weak yen

Japan’s prime minister Fumio Kishida is seizing on an expected surge in spending by international tourists following the lifting of Covid-19 travel curb as an opportunity to emphasise the upsides of a sinking yen.

Economists have estimated annual foreign tourist spending could exceed the government’s annual target of ¥5tn ($35bn), a level that would help offset the higher costs of imported food and energy that have widened Japan’s trade deficit.

“We need to prepare various measures to maximise the benefits of the weak yen by promoting inbound tourism, reshoring of companies and exports,” Kishida said in an interview with the Financial Times last week.

Changing the gloomy economic narrative surrounding the yen’s decline is crucial for Kishida, whose popularity has fallen to an all-time low. A recent poll by Jiji showed a 4.9 percentage point drop in support to 27.4 per cent.

Japan lifted almost all remaining coronavirus travel restrictions on October 11, scrapping visa requirements for individual tourists and an entry cap of 50,000 foreign visitors per day.

Visitors are now exempt from quarantine and Covid-19 tests on arrival, although they still have to submit either a certificate of vaccination or a negative test result from within 72 hours of their departure.

Ahead of the ending of restrictions, Kishida went on a whirlwind tour that included celebrating the return of Formula One motor racing to the Suzuka Circuit in central Japan and promoting Wagyu beef in the south-western prefecture of Kagoshima.

Making one of his first public appearances without wearing a face mask, the prime minister’s message was clear: after nearly three years, Japan was finally ready to reopen to the world.

The government ¥5tn target for annual tourist spending is slightly higher than the level achieved in 2019 when a record 31.8mn international travellers visited Japan.

Yuriko Tanaka, an economist at Goldman Sachs, said inbound consumption could reach an annual ¥6.6tn if Chinese tourists returned to Japan, as she expects in the second quarter of 2023 at the earliest. Such a return would require a big shift in the Chinese government’s strict zero-Covid approach, which includes tight curbs on outward travel. China accounted for about a third of Japan’s foreign visitors in 2019.

When overseas spending by Japanese citizens travelling abroad was taken into account, the net gain from international travel would be about ¥4.3tn, Tanaka said.

“This amount is not large enough to fully offset Japan’s large goods trade deficit, but it is more than enough to offset the ¥1tn current account deficit that we predict for 2023,” she said.

Rino Onodera from Mizuho Research & Technologies said Kishida’s ¥5tn inbound spending target would be “quite ambitious” without Chinese tourists. But she added the weak yen had already pushed up per-capita spending. “Inflation, as well as ‘revenge’ consumption by long-awaited tourists, is expected to boost spending,” Onodera said.

Before this month’s full reopening, Japan’s policy on international visitors had caused confusion and turmoil in the travel industry. A partial easing of restrictions in June required individual tourists to be escorted by a guide “from entry to departure”.

Economists said increasing inbound spending was vital while Japan’s underlying domestic demand remained weak.

The country posted a monthly trade deficit of more than ¥2.49tn in August. The cost of imported goods has been further inflated by the yen’s fall to a 32-year low of ¥148.86 against the US dollar on Friday.

But Fumiko Kato, chief executive of WAmazing, a company that provides services to foreign tourists in Japan, said there could be a downside to the arrival of tourists with newly increased purchasing power.

Visitor spending could raise prices in popular tourist areas, putting pressure on the local population, Kato warned. “Locals may feel they are oppressed by foreign tourists.”


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