- Mizuho concerned as Chinese visitors drop 41% since August
- JPMorgan says room for yuan to slump another 10% by year-end
Chinese tourists tumbling off buses into the Laox duty-free store in Tokyo’s bustling Ginza district say the yuan’s drop against the yen may make them think twice about splurging during their shopping tours.
“Exchange rates are important,” said a 27-year-old Beijinger called Wang, who declined to give his full name but was happy to show off his purchases -- a face-massaging tool and electric thermos. While Japanese goods are better quality than those in China, the currency market determines what he can afford with his daily shopping budget equivalent to $800, he said.
The number of Chinese visitors to Japan, which peaked at 591,510 in August, fell to 347,100 in December, as the yuan weakened about 10 percent against the yen since the end of July. That’s a reversal from the 20 percent surge in the previous 12 months that helped Chinese tourism to Japan more than double in 2015. The 41 percent drop in visitors was steeper than the seasonal decline in 2014.
Japan is increasingly relying on tourism as businesses cut investment and households curb spending. Visitors from around the world spent 3.4 trillion yen ($28.6 billion) in 2015, about the same as the nation’s annual semiconductor or automobile-part exports, according to the Ministry of Finance. Economists forecast growth of only 1 percent this year and just 0.6 percent in 2017, even as Prime Minister Shinzo Abe enters the fourth year of a premiership focused on ending 20 years of economic stagnation.
“The strong yuan has enabled many people to go on shopping binges in Japan even when the Chinese economy has been wobbly," said Daisuke Karakama, chief market economist at Mizuho Bank Ltd. in Tokyo. "The yuan has been fixed at an artificially high level, which hasn’t reflected the country’s economic condition, and the repercussions are now being felt.”
The yuan bought 18.003 yen as of 6:41 p.m in Tokyo on Monday, down from as strong as 20.285 yen on June 5, before the People’s Bank of China surprised the market first with a devaluation in August and then with lower daily fixings this month. China’s economic growth slowed to 6.9 percent last year, the weakest pace in a quarter century.
The exchange rate matters because, after visitor numbers from China climbed 107 percent last year to 5 million, they made up a quarter of the overall total, according to Japan Tourism Agency data released in January. The Chinese each spent an average 283,842 yen, the most of any nationality.
Forty-three percent of Chinese tourists surveyed by Hong Kong-based brokerage CLSA Ltd. said they would reduce the number of their outbound trips if the yuan weakened 10 percent in the next year, and 35 percent said they would cut the amount they spent on shopping. Thirty-five percent said they would switch to cheaper destinations, according to the report from Hong Kong-based analysts Aaron Fischer and Marcus Liu published this month.
A regular visitor who gave his name only as Liu said the exchange rate was making him put off purchases he was unsure on. Liu, 46, paid about 2 million yen for a compact-disk player and amplifier from Accuphase Laboratory Inc. in one of his two visits last year. Shujing Lu, 25, said Japan will remain her destination of choice regardless of currency moves because its products are higher quality. Favorite purchases of Chinese tourists include hi-tech rice cookers and even electronic toilet seats.
Analysts are becoming increasing bearish on the yuan as China’s economy slows. The median forecast is for it to weaken to 6.6 per dollar by March 31 from an earlier prediction of 6.2 made at the end of July.
At the same time, they are less negative on the yen, expecting it to weaken to 122 per dollar, from an earlier estimate for it to depreciate to 126, according to data compiled by Bloomberg. It’s 118.72 currently.
JPMorgan & Chase Co. sees scope for the yuan to decline another 10 percent against the yen by year-end. In addition to sapping retail spending in Japan, this threatens to increase deflationary pressure as imports from China become cheaper.
Tohru Sasaki, head of Japan markets research at the company in Tokyo, said he expects the yuan will weaken to 6.9 per dollar by year-end, and at the same time the yen will strengthen against the greenback to around 110. “The yuan will be considerably weaker against the yen, falling below 16,” he said. “That would have a wide-reaching impact on Japan’s economy.”