After more than two years of strict Covid-19 border controls, Japan restored visa-free travel to 68 countries on Tuesday.
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The Japanese Yen’The slide against the US dollar has raised some concern in Japan, but this may encourage more travelers to visit the country again, according to analysts – although they say a major rebound in the tourism sector will not happen without the return of Chinese tourists.
After more than two years of strict border controls with the Covid virus, Japan restored visa-free travel to 68 countries on Tuesday.
Package tours are no longer necessary, the The Japan National Tourism Organization (JNTO) reported.
The daily entry limit of 50,000 people and PCR testing on arrival at the airport has been cancelled. However, it is still necessary for travelers from all countries and regions to provide a negative Covid test certificate or proof of vaccination, JNTO said.
With the easing of restrictions and the depreciation of the yen, tourism will return to the country quickly – especially from Asia, Jesper Koll, director of financial services firm Monex Group, told CNBC.
Cole said that despite the importance of travelers from Europe and the United States in aiding tourism in Japan, “the bulk of the enthusiasm and the bulk of the travel” still comes from countries such as Singapore, the Philippines and Thailand.
“Obviously, a cheap yen increases the potential for tourism to contribute significantly to the economy,” Cole said. “As restrictions come down further, and capacity for domestic flights opens, I expect we will see domestic spending and domestic tourism accelerate very, very quickly.”
In 2019, Japan received 32 million foreign visitors and spent about 5 trillion yen, but domestic spending is now only a tenth of that, according to a Goldman Sachs note issued in September.
The investment bank estimated that domestic 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.
“The ballpark estimate indicates a potential greater inbound spending of 6.6 trillion yen (annual) after full reopening versus the pre-pandemic level of 5 trillion yen, which was partially helped by the weakening yen,” the note said.
The Japanese currency fell to a 24-year low of 146.98 against the dollar during London trading hours on Wednesday.
Japanese officials intervened in the forex market in September when the dollar against the yen reached 145.9.
“I don’t think the yen was as cheap as it is now in living memory,” Darren Tai, a Japanese economist at Capital Economics, said on CNBC. “Squawk Box Asia” Tuesday. “Tourists have been calling for the borders to be reopened…so I think a weak yen will be another motivating factor” for them to travel to Japan again.
Although airfares to Japan have gone up since the announcement was made, tourists will still get a lot of money when they stay in Japan, Cole said.
“You can eat twice as many hamburgers, and twice as many sushi for your dollar here in Japan than in the United States, and even compared to the rest of Asia,” he added.
Tai said 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 not yet returned.
“Chinese tourists actually make up a lot of what foreign tourists spent in 2019… they are still following a Covid-free strategy, so they won’t be back anytime soon,” he said.
Goldman Sachs said that Chinese tourists, who made up 30% of foreign visitors to Japan in 2019, can only return in the second quarter of 2023.
Once China fully reopens, inbound spending from Chinese visitors has the potential to increase from 1.8 trillion yen in 2019 to 2.6 trillion yen – 0.5% of Japan’s GDP, said Yuriko Tanaka, an economist at Goldman Sachs.
“Chinese visitors hold the key to a real recovery in domestic spending,” Tanaka said.
Without visitors from China, Cole said, it may take some time before domestic spending in Japan returns to pre-pandemic levels. But strong demand from the rest of Asia could push domestic spending back “relatively quickly” to more than $3 trillion by March 2023.
Cole said markets expect the US Federal Reserve to raise interest rates by 75 basis points in November, and the yen will continue to weaken as the dollar continues to strengthen.
“You have the interest rate differential widening [between Japan and the U.S.]And the Federal Reserve isn’t done yet. There is at least one interest rate increase in the cards.”
He added that the yen could weaken further towards the 155 level, consolidating only next spring – and that won’t be the result of a move from Japan, but from the Fed’s indication that it has “moved enough on the brakes”.
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