Weak Japanese Yen Causes Domestic and International Travel Demand to Flipflop
The double whammy of inflation and relatively anemic wage growth means no more trips to Hawaii but maybe one to Okinawa.
What’s new: While much has been written in the media about how Japan has recently become a bargain for international visitors, not much has appeared in the Western press about how the recent devaluation of the Japanese yen, known in Japanese as en-yasu (円安), has affected Japanese travelers. Now, fewer Japanese are vacationing overseas in perennial favorites such as Hawaii and Australia. At the same time, although it has been more than 40 years since prime domestic destinations such as Ishigakijima and Miyakojima in Okinawa Prefecture enjoyed their heyday, these island gems are experiencing something of a resurgence of interest among those who can still afford to travel within Japan.
Why it matters: While globetrotting Japanese tourists (with their cameras) have played a prominent role in the world's major tourist destinations for decades, times have changed recently. Due to the rapid and extensive depreciation of the Japanese yen against the U.S. dollar, overseas travel has once again become an expensive proposition for many Japanese. In fact, Japanese people can barely travel domestically due to the effects of inflation and anemic wage growth1.
By the numbers: The cost of overseas travel has become prohibitive.
Domestic travel as a bargain: A trip to Hawaii now costs about 200,000 yen (about $1,330) for a round-trip ticket to Honolulu and 150,000 yen ($1,000) for four nights in a middle-class hotel. In contrast, a round-trip ticket from Tokyo to Ishigakijima or Miyakojima in Okinawa Prefecture costs only about 50,000 yen ($330). Domestic hotel rates vary - and often include breakfast and dinner as part of the cost - but are still a relative bargain compared to hotel accommodations in Waikiki, for example.
Airplane travel is not cheap: Fuel surcharges can be overwhelming for would-be international travelers. In January 2024, for example, JAL charged 97,200 yen (almost US $650) for a round-trip ticket to Europe and the U.S., and 56,400 yen ($375) for a round-trip ticket to Hawaii, in addition to the cost of the ticket.
So-called "dollar stores" are a misnomer: If you are used to low prices in Japan, you will be surprised at how expensive everything is when you go abroad. In New York City, for example, there are still Japanese-style "100-yen stores" where you can buy all sorts of necessities and souvenirs on a budget. However, the name of this type of store category has become a misnomer. Daiso, one of the largest and best-known such chains in Japan, opened its first New York store in Flushing, Queens, with a minimum price range of $1.99 (300 yen). None of these stores - including locations in Bangkok and Kuala Lumpur - are what are called "100 yen" stores in Japan, but the same products cost two to three times as much as in Japan.
Even ramen seems pricey: Homesick Japanese travelers in New York have to shell out more money for a taste of home. At 150 yen to the dollar, a bowl of ramen at the famous Momfuku Noodle Bar in the East Village and Uptown now costs 3,600 yen (3,000 yen for the noodles and 20% for tip), or $24. That's more than four times the price in Japan (where there is no need to tip). There is, by the way, almost always at least a 30-minute wait just to get into this popular restaurant.
Dwindling number of international travelers from Japan: Looking back, overseas travel from Japan experienced a major boom in the 1980s. The opening of Narita Airport, the appreciation of the yen after the Plaza Accord, and the bubble economy accelerated the boom. The number of Japanese traveling from Japan annually increased from 3.9 million in 1980 to over 10 million in 1990. Since then, the number has continued to rise every year, eventually reaching 20 million in 2019 before the global pandemic. However, it is unlikely that the annual number of overseas travelers from Japan will ever exceed 20 million again.
Meanwhile: There are quite a few wealthy people, elites, and talented young people who have given up on Japan and gone to live abroad.
"The Japanese people are really in danger now...The nation may only have a few years left to live." - A common complaint of many of the overseas Japanese interviewed by Jun Yamada
However, the number of Japanese living abroad is very small2. Before the global pandemic, the number of Japanese expatriates had been increasing steadily over the past few decades, but the number of Japanese living abroad has declined slightly in the past two years. This is primarily due to Covid and now as a result of the recent dramatic depreciation of the Japanese yen.
Commentary: Having lived in Japan for a total of more than a quarter of a century (not counting 3 multi-year "tours of duty" back home in Chicago) since the late 1980s, first as a student, then as a businessman, and now as a semi-retired early retiree, I have seen periods when the yen/USD exchange rate was as high as 80 yen/USD as well as the current reality of 150 yen/USD. Oddly enough, the average over this entire period has remained fairly constant. It just did not feel that way - especially during the exceptionally high and low cycles.
Trying to predict exchange rates is almost impossible. However, the latest devaluation of the yen seems to have been unusually rapid and somewhat extreme. Although easier said than done, one way to deal with currency risk would be to diversify your income and expenses as much as possible. In other words, earn income in both your home and host currencies. Similarly, try to spread your living expenses across both currencies to minimize the impact of fluctuations in either currency. I can just hear the collective sigh, "Yeah, right. How do I do that?" It is certainly not easy, but it is worth a try.
Also, many Japanese banks offer multi-currency accounts, and it is easy to transfer money between such accounts at any time using a phone app.
What’s next: The macroeconomic indicators that economists are watching are not good for Japan, including gross domestic product (GDP) statistics that showed negative quarter-on-quarter growth in July-September 2023 and October-December 2023. It is clear that the official goal of 2% inflation is not in line with the "size" of the economy, as consumers have responded by reducing the volume of consumption (real consumption) in response to the burden of rising prices.
Nevertheless, the Bank of Japan (BOJ) is likely to decide that the consumer price index (CPI) has "consistently exceeded 2%" in both March or April and subsequently lift the negative interest rate. Since this would be a tightening of monetary policy, an outright move should lead to a weakening of the dollar and a strengthening of the yen.
However, there are those who believe that the yen will remain excessively weak for the foreseeable future. Anything can happen to change the yen/USD exchange rate - both events in Japan as well as in the US.
The bottom line is that everyone will just have to get used to the current new normal of 150 yen/USD. Thus, the Ala Moana Center on Oahu is likely to see far more mainland visitors than Japanese for a while.
What do you think? Where is the yen/USD exchange rate headed? All responses are completely anonymous--even to the author.
Links to Japanese Sources: https://news.yahoo.co.jp/articles/f9c3078046156b777b3114cae8e8c5d15b190594 and https://jp.reuters.com/opinion/forex-forum/7UD6OBIOSNOZPNH3KGV7MZOLNA-2024-02-22/.
#devaluation #inflation #overseastravel #domestictravel #fuelsurcharge #円安 #海外旅行 #国内旅行 #物価高 #インフレ #燃油サーチャージ #安いニッポン #先進転落国
Commentary excerpted from Jun Yamada's book Nippon Keizai no Kabei (The Wall of the Japanese Economy), MDN Corporation (山田順氏の著書『日本経済の壁』、エムディエヌコーポレーション
Estimated at approximately 1.3 million, mostly in the U.S. (400,000) and China (100,000).
I see two main trends affecting the yen/other currencies exchange rate: the shorter-term one of the gap in interest rates, and the longer term one of the loss of Japanese export competitiveness. Even if the interest rate gap closes slightly, the loss of export competitiveness remains. Japan continues to try to sell lots of mid-range cars overseas, a product typically produced these days in upper middle-income countries in central and eastern Europe or middle-income countries in Asia. Electronics exports may get a boost from the recent construction and opening of semiconductor fabs, hopefully this won't be a glut-and-collapse situation as the LCD factories were around Osaka Bay in the early 2000s. If Japan can recover it's export competitiveness through higher-end products, the exchange rate may recover. My own guess is it will continue weakening slightly.
You mention diversifying currencies. I suppose, to some extent, it depends which currencies we're talking about; but currency debasement is pretty much a global problem so it may not do any good.
Another problem is that even many economists and financial professionals do not understand the difference between currencies, credit and money. Alasdair Macleod explains it much better than anyone else:
https://alasdairmacleod.substack.com/p/understanding-the-difference-between
As Macleod says, understanding the difference will be vital to surviving the collapse, which lies ahead.
The diversification which everyone should make is into physical gold and silver bullion in your own possession. The only asset without counterparty risk. Anyone who has watched and/or read "The Great Taking" will understand:
https://www.youtube.com/watch?v=dk3AVceraTI&t=6s
https://www.goodreads.com/book/show/203175664-the-great-taking