After greater than two years of strict Covid-19 border controls, Japan reinstated visa-free travel to 68 countries on Tuesday.
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The Japanese yen’s slump against the U.S. dollar has sparked some worry in Japan, but that might encourage more travelers to go to the country again, in keeping with analysts — though they are saying a big rebound within the tourism sector won’t occur without the return of Chinese tourists.
After greater than two years of strict Covid border controls, Japan reinstated visa-free travel to 68 countries on Tuesday.
Package tours are not any longer obligatory, the Japan National Tourism Organization (JNTO) reported.
The day by day entry limit of fifty,000 people and the on-arrival PCR test on the airport have been scrapped. Nevertheless, it continues to be mandatory for travelers from all countries and regions to submit a negative Covid test certificate or proof of vaccination, JNTO said.
With the easing of restrictions and the depreciating yen, tourism to the country will return quickly — especially from Asia, said Jesper Koll, director of monetary services firm Monex Group told CNBC.
Koll said that although travelers from Europe and the U.S. are necessary in aiding Japan’s tourism recovery, “the majority of the passion and the majority of travel” still come from countries like Singapore, the Philippines and Thailand.
“The cheapness of the yen obviously increases the probability of tourism contributing greatly to the economy,” Koll said. “Because the restrictions get rolled back further, and the capability of inbound flights open up, I expect that we are going to see inbound spending and inbound tourism speed up very, in a short time.”
In 2019, Japan welcomed 32 million foreign visitors they usually spent about 5 trillion yen, but inbound spending is now only one-tenth of that, in keeping with a Goldman Sachs note from September.
The investment bank estimated that inbound spending could reach 6.6 trillion yen ($45.2 billion) after a 12 months of full reopening, as travelers might be encouraged to spend more due to weak yen.
“Our ball-park estimation points to potentially larger inbound spending of ¥6.6 tn (annual) post full reopening versus the pre-pandemic level of ¥5 tn, partly helped by the weak yen,” the note said.
The Japanese currency plunged to a fresh 24-year low and was at 146.98 against the greenback during London’s trading hours on Wednesday.
Japanese officials intervened within the forex market in September when the dollar-yen hit 145.9.
“I do not think the yen has been as low-cost because it is now in living memory,” said Darren Tay, Japan economist at Capital Economics, said on CNBC’s “Squawk Box Asia” on Tuesday. “Tourists were already clamoring for borders to reopen … So I feel the weak yen will function one other motivating factor” for them to travel to Japan again.
Although flight ticket prices to Japan have increased for the reason that announcement was made, tourists will still get a bang for his or her buck once they spend in Japan, Koll said.
“You may eat twice as many hamburgers, twice as much sushi to your dollar here in Japan in comparison with the USA, and even in comparison with the remainder of Asia,” he added.
Chinese tourists ‘hold the important thing’
The outlook for Japan’s tourism recovery looks promising, but “the general impact on Japan’s economy is probably not a net positive” as Chinese tourists have yet to return, Tay said.
“Chinese tourists actually make up a considerable amount of what foreign tourists spent back in 2019 … They’re still pursuing a zero-Covid strategy in order that they won’t be returning anytime soon,” he said.
Goldman Sachs said Chinese tourists, who made up 30% of foreign visitors to Japan in 2019, could return only within the second quarter of 2023.
Once China fully reopens, inbound spending from Chinese visitors has the potential to extend from 1.8 trillion yen in 2019 to 2.6 trillion yen — 0.5% of Japan’s gross domestic product, said Yuriko Tanaka, economist at Goldman Sachs.
“Chinese visitors hold the important thing to a bona fide rebound in inbound spending,” Tanaka said.
Without visitors from China, it could take a while before inbound spending in Japan returns to pre-pandemic levels, Koll said. But strong demand from the remainder of Asia could drive inbound spending to return “relatively quickly” to over $3 trillion by March 2023.
Outlook for yen
As markets expect the U.S. Federal Reserve to hike rates of interest by 75 basis points in November, the yen will proceed to weaken because the dollar continues to strengthen, said Koll.
“You have the widening rate of interest differential [between Japan and the U.S.], and the Federal Reserve shouldn’t be done yet. There’s at the least another rate of interest hike within the cards,” he said.
He added that yen could weaken further toward the 155 level, strengthening only next spring — and that would not be the results of motion from Japan, but of the Fed signaling that it has “stepped enough on the brake.”
