After more than two years of tight border controls, Japan resumed visa-free travel to 68 countries on Tuesday.
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The Japanese Yen’The drop against the US dollar has raised some anxiety in Japan, but that could encourage more tourists to visit the country again, say analysts – though although they say a significant recovery in the tourism sector would not have occurred without the return of Chinese tourists.
After more than two years of strictly controlling Covid borders, Japan resumed visa-free travel to 68 countries on Tuesday.
Package tours are no longer necessary, Japan National Tourism Organization (JNTO) reported.
The daily entry limit of 50,000 people and PCR checks on arrival at the airport have been removed. However, travelers from all countries and regions are still required to submit a negative Covid test certificate or proof of vaccination, the JNTO said.
Jesper Koll, director of financial services firm Monex Group, said with the easing of restrictions and a depreciating yen, travel to the country should return quickly – especially from Asia.
Koll said that while visitors from Europe and the US have played an important role in supporting Japan’s tourism recovery, “much of the enthusiasm and the majority of travel” still comes from other countries. countries such as Singapore, Philippines and Thailand.
“The cheap yen clearly increases the likelihood that tourism makes a big contribution to the economy,” Mr. Koll said. “As restrictions are pushed back further and capacity of domestic flights expands, I expect that we will see domestic spending and domestic travel increase very rapidly.”
In 2019, Japan welcomed 32 million foreign visitors, and they spent about 5 trillion yen, but domestic spending is now only a tenth of that, Goldman Sachs notes from September.
The investment bank estimates that domestic spending could hit 6.6 trillion yen ($45.2 billion) after a year of full reopening, as visitors will be encouraged to spend more due to the currency. weak saddle.
“Our estimates for the football park indicate a larger potential input expenditure of 6.6 trillion (annual) after a full reopening compared to pre-pandemic levels of 5k. billion yen, partly supported by a weak yen,” the note said.
The Japanese currency fell to a 24-year low and was at 146.98 against the greenback during London trading hours on Wednesday.
Japanese officials intervened in the foreign exchange market in September when the dollar-yen hit 145.9.
“I don’t think the yen is as cheap as it is now in living memory,” Darren Tay, Japan economist at Capital Economics, told CNBC. “Squawk Box Asia” on Tuesday. “Tourists have been calling for borders to reopen… So I think the weak yen will act as another motivating factor” for them to come to Japan again.
Although airfares to Japan have increased since the announcement was made, travelers will still get a big buck when they spend in Japan, Koll said.
He added: “You can eat twice as much burgers, twice as much sushi for your dollar in Japan as in the United States and even in the rest of Asia.
Chinese tourists ‘hold the key’
The outlook for Japan’s tourism recovery looks promising, but “the overall impact on the Japanese economy may not be positive” as Chinese tourists have yet to return, Tay said. speak.
“Chinese tourists actually accounted for a large portion of the money that foreign tourists spent in 2019… They are still pursuing a zero-Covid strategy so they won’t be back anytime soon,” he said.
Goldman Sachs says Chinese tourists, who accounted for 30% of foreign arrivals to Japan in 2019, could return in just the second quarter of 2023.
Yuriko Tanaka, economist at Goldman Sachs, said that once China fully reopens, spending from Chinese visitors is likely to increase from 1.8 trillion yen in 2019 to 2.6 trillion yen – 0.5% of Japan’s gross domestic product.
“Chinese tourists hold the key to a strong rebound in input spending,” said Tanaka.
Koll said without visitors from China, it could take some time before domestic spending in Japan returns to pre-pandemic levels. But strong demand from the rest of Asia could drive domestic spending back “relatively quickly” to more than $3 trillion by March 2023.
Yen outlook
According to Koll, when markets expect the US Federal Reserve to raise interest rates by 75 basis points in November, the yen will continue to weaken as the dollar continues to strengthen.
“You’ve got a widening interest differential [between Japan and the U.S.], and the Federal Reserve is still incomplete. There’s at least one more rate hike in the cards,” he said.
He added that the yen could weaken further towards 155, only to strengthen next spring – and that is not the result of action from Japan, but rather the Fed signaling that it has “stepped enough”. brake”.
