These Tourists Are No Accident With Yen Depreciating: Currencies

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Singaporean Lee San Duo booked a last-minute vacation to Japan this month, hoping to take advantage of the slumping yen. His timing could hardly have been better: the currency tumbled to a record versus Singapore’s dollar just a day before he flew out.

“Things are relatively cheaper and I’ve been spending more,” Lee, 29, said during his visit to the historic castle town of Kanazawa on the Sea of Japan coast. The sales executive said a weak yen allowed him to stock up on his favorite Burberry Group Plc designer shirts and other “expensive” items.

A record 11 million foreign tourists visited Japan in the first 10 months of this year, up 27 percent from the same period in 2013, with more than half from elsewhere in Asia, government data show. The tourism boom may signal a lower yen is starting to help the world’s third-largest economy, which last quarter slipped into its fourth recession since 2008.

The yen has depreciated against 27 of the 31 most-traded currencies since mid-year as well as all its Asian peers as the Bank of Japan expands the money supply to encourage growth. It slumped to an all-time low of 92.13 yen per Singapore dollar on Dec. 8, when it also touched the weakest versus Thailand’s baht since 2008 and a seven-year low of 121.85 to the U.S. dollar.

‘Even Further’

“This is no doubt positive for the Japanese economy and the trend should continue going forward because the yen is likely to weaken even further,” Kazuhiko Ogata, the chief Japan economist at Credit Agricole SA in Tokyo, said by phone.

The French bank sees the yen falling more than 8 percent to 130 per U.S. dollar by the end of 2015, according to a Dec. 12 estimate. The median forecast of more than 50 strategists surveyed by Bloomberg puts it at 125, from 119.06 as of 8:40 a.m. in New York.

The yen has lost about 30 percent of its value versus the U.S. dollar since December 2012, when Prime Minister Shinzo Abe came to power pledging to boost inflation and revive growth with his so-called three arrows policy, which included plans for an unprecedented increase to the monetary base.

Travel and tourism made up about 7 percent of Japan’s economy last year, and this year spending by overseas visitors will be 13 percent higher, according to the World Travel & Tourism Council.

Economic Boon

The jump in visitor numbers is a boon for an economy that shrank an annualized 1.9 percent in the third quarter, compared with the previous three months. The recession offset the boost to export competitiveness from the weaker yen, and confidence among Japan’s large manufacturers declined this quarter, the BOJ said Dec. 15.

For decades, developing nations from Thailand to Indonesia welcomed Japanese tourists eager to experience the region’s diving spots and tropical rainforests. Those countries are now returning the favor as increasingly wealthy Southeast Asian travelers boost consumer spending hit by an increase to Japan’s sales tax in April.

Arrivals from Southeast Asia’s six largest economies in the first 10 months of this year exceeded the total for all of 2013, according to the Japan National Tourism Organization. Seven of the 10 biggest gainers since June versus the yen among major currencies are in Asia, led by 17 percent advances for China’s yuan and the Hong Kong dollar, and an 11 percent increase in India’s rupee.

Foreign Investment

Japan’s lower exchange rate is also encouraging investment from its neighbors. GIC Pte, Singapore’s sovereign-wealth fund, said in October it bought a building connected to Tokyo Station in the capital’s business district.

“It’s not just about Southeast Asians flocking to the ski slopes and sushi restaurants,” Wai Ho Leong, a Barclays Plc economist in Singapore, said in a phone interview. “For multinational corporations and research institutes in Southeast Asia, the weaker yen is an opportunity to acquire specialized machinery and process technology from Japan at a much cheaper price.”

For Lee, who also visited the Wajima region, known for its lacquer ware, the yen’s decline toward 100 to the Singapore dollar made it easier to make quick price calculations.

Ariya Tiranaprakij is another traveler taking advantage of the yen’s decline. The 46-year-old executive vice president of the Thai Bond Market Association said the exchange rate, together with a visa exemption for Thais, encouraged her to take three impromptu trips to Japan this year.

“Lots of my friends and colleagues went to Japan this year because of the weak currency and easy access,” Ariya said by phone this month after her most recent visit. “I also plan to exchange yen and keep it for my future trips. I will go to Japan again for sure and the rate now is so tempting.”