After more than two years of strict Covid-19 border controls, Japan on Tuesday resumed visa-free travel to 68 countries.
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The Japanese yenThe yen’s depreciation against the US dollar has caused some concern in Japan, but analysts say it could encourage more travelers to visit the country again – although a significant recovery in the tourism sector won’t happen without a return of Chinese tourists.
After more than two years of strict Covid border controls, Japan on Tuesday resumed visa-free travel to 68 countries.
Package tours are no longer necessary This was reported by the Japan National Tourism Organization (JNTO).
The daily entry limit of 50,000 people and the PCR test on arrival at the airport have been lifted. However, JNTO said it is still mandatory for travelers from all countries and regions to submit a negative Covid test certificate or proof of vaccination.
Jesper Koll, director of financial services firm Monex Group, told CNBC that with the easing of restrictions and a weaker yen, tourism to the country will return quickly – especially from Asia.
Coll said that while travelers from Europe and the United States are important in helping Japan’s tourism recovery, “the bulk of the enthusiasm and the bulk of the travel” still comes from countries such as Singapore, the Philippines and Thailand.
“The cheapness of the side obviously makes tourism a big contributor to the economy,” Coll said. “As restrictions are further eased and inbound capacity opens up, I expect we will see inbound spending and inbound tourism accelerate very, very quickly.”
In 2019, Japan welcomed 32 million foreign visitors and they spent about 5 trillion yen, but inbound spending is now only a tenth of that, according to a Goldman Sachs note since September.
The investment bank estimated that inbound spending could reach 6.6 trillion yen ($45.2 billion) a year after the full reopening, as travelers will be encouraged to spend more due to the weak yen.
“Our ballpark estimate points to potentially larger input costs of ¥6.6tn (yearly) upon full reopening versus the pre-pandemic level of ¥5tn, helped in part by the weak yen,” it said.
The Japanese currency fell to a 24-year low of 146.98 against the dollar in London trading hours on Wednesday.
Japanese officials intervened in the forex market when the dollar-yen hit 145.9 in September.
“I don’t think the yen is as cheap as it is now,” Darren Tay, Japan economist at Capital Economics, told CNBC. “Squawk Box Asia” Tuesday. “Tourists were already clamoring for the borders to reopen… So I think the weak yen will act as another motivating factor for them to travel to Japan again.”
Koll said that although the prices of air tickets to Japan will increase after the announcement, tourists will get their money’s worth for their time in Japan.
“You can eat twice as much hamburger and twice as much sushi for your dollar in Japan compared to the US here, or even the rest of Asia,” he added.
Chinese tourists “hold the key”
Tay said the outlook for Japan’s tourism recovery looks promising, but “the overall impact on Japan’s economy may not be a net positive” because Chinese tourists have not yet returned.
“Chinese tourists actually account for a large proportion of foreign tourist spending in 2019… They are still following a zero Covid strategy that they won’t be coming back anytime soon,” he said.
Goldman Sachs said that Chinese tourists, who accounted for 30% of foreign visitors to Japan in 2019, will return only in the second quarter of 2023.
Goldman Sachs economist Yuriko Tanaka said that once China fully reopens, inbound spending by Chinese visitors could rise to 2.6 trillion yen from 1.8 trillion yen in 2019, accounting for 0.5% of Japan’s gross domestic product. does.
“Chinese visitors hold the key to a bona fide increase in inbound spending,” Tanaka said.
Koll said that without visitors from China, it may take some time for spending in Japan to return to pre-pandemic levels. But strong demand from the rest of Asia could boost inward spending to surpass $3 trillion “relatively quickly” by March 2023.
Forecast for Yen
Koll said the yen will continue to weaken as the dollar continues to strengthen as markets expect the US Federal Reserve to raise interest rates by 75 basis points in November.
“You have a widening interest rate differential [between Japan and the U.S.], and the Federal Reserve is not done yet. At least one more rate hike is on the cards,” he said.
He added that the yen would weaken further towards 155, only to strengthen next spring – and not as a result of Japan’s move, but as a result of the Fed’s signal that it had “enough to step on the brakes”.
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