“Japanese Minister of Finance Satsuki Katayama and South Korean Minister of Economy and Finance Koo Yun-cheol expressed serious concern over the sharp depreciation of the Korean won and the Japanese yen. Furthermore, they reaffirmed that they will closely monitor foreign exchange markets and continue to take appropriate actions against excessive volatility and disorderly movements in exchange rates,” said a media note after the officials met in Tokyo.

The yen touched its lowest in 20 months on 13th March, nearing the line of 160.00 to the dollar that the market analysts think might prompt Tokyo to intervene to support the currency. ‌The ⁠won, on the other hand, breached a psychological barrier of 1,500 per dollar this month for the first time since March 2009.

The Iran war has also driven ⁠the dollar higher on safe-haven demand, apart from battering the currencies of countries heavily reliant on imported oil.

The currency is also gaining as traders reduce expectations for how much the US Federal Reserve might cut borrowing costs in 2026, as worries over rising inflation have reduced the likelihood of interest rate cuts from two before the war to none now.

Tokyo and Seoul shared the view that significant volatility had emerged in financial markets, including foreign exchange, Satsuki Katayama told a press conference after the meeting.

“The Japanese government ⁠is fully prepared to respond at any time, bearing in mind the impact that currency moves may have on people’s livelihoods amid surging oil prices, and I believe both ⁠sides share that understanding,” she added.

Yen, due to its huge trade surplus and enormous net international investment positions, was once used to enjoy unconditional safe-haven status.

However, that position is under threat now, as Joey Chew, head of Asia FX research at HSBC, told Reuters, “The yen can be vulnerable to potential oil supply shocks – it also weakened last year in mid-June amid Israel-Iran tensions.”

The post Japan, South Korea share volatile currency concerns as Yen faces stern test appeared first on International Finance.

Now, talking about the yen, the Japanese currency has lost about a third of its value since the end of 2019, driven mainly by the wide gap in interest rates between Japan and the United States. There are reports about a weak yen cutting into Japanese travellers’ ability to spend abroad, as rising overseas prices and lower interest in international travel among younger generations appeared to be factors behind declining passport ownership in the Asian country, preventing a full rebound from pandemic-era lows.

Talking about the yen, the Japanese currency is the world’s third most traded one, accounting for 13% of global foreign exchange transactions in 2022.

“From March to August 2024, the yen experienced a rollercoaster of fluctuations, reflecting the high sensitivity of currency markets to both domestic policy changes and global geopolitical events. Key drivers included Japan’s shift away from its negative interest rate policy, interest rate hikes, and uncertainties surrounding a potential US recession. These fluctuations represent a new normal for the yen and explore its potential implications for the economic and geopolitical landscape in the Indo-Pacific region,” stated Dr Seohee Park, a postdoctoral research fellow at the Department of International Politics and Economy, Graduate School of International Cultural Studies, Tohoku University.

A turbulent 2024

Yen’s recent movements have been heavily influenced by geopolitical events like the Russia-Ukraine war and tensions in the Asia-Pacific region. The core of the yen’s recent volatility is the Bank of Japan’s (BOJ) monetary policy. In March 2024, the USD/JPY exchange rate ranged from a low of 146.92 to a high of 151.61, reflecting the yen’s depreciation.

Such a weak yen prompted the BOJ, under the leadership of Kazuo Ueda, to intervene in April to stabilise the currency. The central bank ended its negative interest rate policy that had lasted for eight years and increased interest rates for the first time in 17 years.

Despite these policy changes, the yen continued to weaken, reaching its lowest point on 9th July (161.60 yen to $1) since June 1986. Thus, the BOJ underwent another intervention on 11th July, spending up to 3.57 trillion yen ($30.11 billion) in the foreign exchange market to lift the yen from its 38-year low.

“The exchange rate peaked at around 161.90 in July, just before the yen appreciated significantly by over 12% following the central bank’s rate hike.

Throughout July to August, the yen moved from 161.99 on 3rd July to 141.66 by 5th August. This appreciation was partly due to the BOJ’s decision to raise interest rates to 0.25% and reduce bond purchases, which strengthened the yen against the dollar. However, the yen’s rapid appreciation on 5th August triggered a massive sell-off in the Japanese stock market, with the Nikkei Stock Average plummeting 4,451.25 points, or 12%, its worst-ever daily decline,” said Dr Park.

The above-mentioned sell-off was driven by concerns over a potential US recession and the yen’s strength, which could negatively impact Japanese exporters. Surprisingly, the market rebounded sharply, surging 3,217.46 points, or 10.2%. The rebound was attributed to strong US service sector data for July, which eased concerns about a recession and led to a correction in the dollar-yen rate.

In August, the yen’s value again fluctuated between 143.89 and 149.34, with an average rate of 146.63. This volatility occurred due to the interest rate disparity between Washington and Tokyo, as well as market reactions to a potential US economic downturn.

While the BOJ has been committed to yield curve control and ensuring ultra-low interest rates, these policy stances have played a central role in guiding the yen’s value. However, these accommodative approaches have also fuelled concerns about inflationary pressure, which has permeated Japan’s domestic economy and is evident in the recent surge in consumer prices, driven in part by rising food and energy costs.

While throughout 2024, the BOJ maintained its position that inflation was largely transitory, consumer confidence eroded too, as the ratio fell 0.27% from 2023, leading to a wage-price spiral. The BOJ faced a difficult balancing act: stimulating economic growth while keeping inflation under control.

Yen’s depreciation significantly impacted Japan’s export-oriented industries, particularly in the technology and automotive sectors. In May 2024, exports increased 11.9% compared with the same period in 2023, the highest growth rate since November 2022. The trend was also evident in the mid-August Nikkei rally, where major exporters such as Tokyo Electron, Sony, and Toyota led the gains.

The Nikkei Stock Average surged 3.5% on 13th August, boosted by a weaker yen after the Bon holiday. Still, a boost in exports was checkmated by shrinking sales figures, as global demand remained relatively soft.

“While the weaker yen has boosted Japan’s export-oriented industries, it is crucial to recognise the double-edged nature of this currency depreciation. Many Japanese small and medium-sized enterprises, especially in manufacturing with high dependence on imported energy and raw materials, are facing significant challenges due to increased import costs. This internal economic strain highlights the mixed effects of the currency’s fluctuations. The benefits of a weak yen are not well distributed across the Japanese economy and may come at a considerable cost to certain sectors,” Dr Park noted.

Listed companies’ financial statements for the fiscal year 2023–24 also showed them registering record-high profits due to the weak yen. However, the depreciation also led to a rise in prices for imported goods, amid tepid personal consumption.

Teikoku Databank conducted a survey looking at the impact of the weak yen on 1,046 companies from May 10 through 15, revealing that 16.0% had seen a “positive effect” on sales, 35.0% had experienced a “negative effect,” and 49.0% reported “no change.” In contrast, for profits, there had been a “positive effect” for 7.7%, a “negative effect” for 63.9%, and “no change” for 28.5%, meaning profits at two out of three companies were negatively impacted. Further, 31.7% saw negative effects on both sales and profits.

Even though it was impossible to avoid increases in raw material prices due to the weak yen, it became difficult for each company to reflect those increases in their products and services. Now the question is: why was the currency even falling?

The currency has been losing more than a third of its value since the beginning of 2021. Investors were selling the currency, and exporters were not feeling the need to convert foreign proceeds into yen, further decreasing the currency’s demand.

While the BOJ’s preference for keeping interest rates extraordinarily low to encourage more inflation in its economy (as well as to boost bank lending and spur demand) has been an open secret, in February 2024, widespread labour shortages and a weakening yen resulted in Japan being overtaken by Germany as the world’s third-biggest economy, as the Asian country slipped into recession.

The BOJ had to end its policy of keeping its benchmark interest rate below zero, lifting its short-term policy rate from -0.1% to between zero and 0.1%.
After that decision, markets were focused on the pace of further rate rises. Then the BOJ announced in April that it would hold interest rates steady, which resulted in another round of yen sell-offs, putting more pressure on the currency, as it went down to 160 against the dollar for the first time since 1990.

Yen’s warrior-like legacy

“The currency was born back in 1872, when Japan was brimming with optimism after the Meiji Restoration, abandoning centuries of isolation and encouraging modernisation. It was a currency that symbolised the identity of a newly self-confident nation embracing the wider world. Originally bound to the gold standard, it underwent major changes after 1945. With the world in chaos, the 1949 Bretton Woods system provided a lifeline for shattered economies desperate for stability. Under this new regime, the yen was fixed at 360 yen to the dollar, offering Japan security even if it constrained flexibility. In retrospect, this balancing act reflected the nation’s resilience,” Dr Park said.

By the early 1970s, “Bretton Woods” collapsed as the United States abandoned the gold standard, and Japan let the yen float freely in 1973. The resulting combination of uncertainty and potential generated substantial movements in its value. While the 1985 Plaza Accord intended to weaken the dollar, this triggered a chain reaction that severely affected the yen.

Trade tensions with Washington saw the currency’s value tumble to a low of 79.75 against the dollar by 1995. In response, Japan’s Ministry of Finance soon began directly buying and selling yen to stabilise its value and protect exporters from economic downturns.

Even though the yen going down to 160 against the dollar for the first time since 1990 should have created a panic-like situation in Japan, the currency, for a good part of its existence, has been operating amid headwinds like global financial crises and shifts in monetary policy.

As the Japanese proverb ‘fall seven times, stand up eight’ implies, responding with resilience is what counts for a currency.

“Over the years, the yen has exemplified this resilience, especially in uncertain times. From the fallout of the 2008 financial crisis, when it surged to around 90.87 against the dollar as investors ran for safety, to its role as a haven during the COVID-19 pandemic, the yen has proved itself. However, its apparent stability remains vulnerable to external pressures, particularly when other nations grapple with inflation: the 2022 uplift in US interest rates battered the yen and widened the yield gap between Japanese and US government bonds. This growing divergence in monetary policies has made the yen more volatile and more subject to investor sentiment,” noted Dr Park.

In September 2024, inflation in Tokyo met the BOJ’s 2% target, signalling a return to growth and the promise of further interest rate hikes. However, the yen was trading at about 147.83 to the dollar, the weakest rate in decades, as the country was dealing with geopolitical tensions, especially in the Asia-Pacific region, supply chain problems, and the decision to keep interest rates near zero, all contributing factors.

In 2024, Dr Park said, “Speculation about changes in Japan’s monetary policy suggests that the yen might bounce back, but with inflation creeping upwards and mounting global uncertainty, the situation is more precarious for consumers and policymakers alike, leaving the currency exposed. The defining moment came in July 2024 when the BoJ raised its short-term policy range from 0% to a tentative 0.1%. While a stronger yen may temper inflation, it may also dampen Japan’s export-driven economy.”

According to the “Economic Complexity Index,” Japan has remained the world’s most complex economy, due to its sophisticated infrastructure, diverse export base, advanced industrial sector, and leadership in technologies like electronics, robotics, and automotive manufacturing. Nevertheless, Japan’s low interest rates, domestic inflation challenges, and total reliance on energy imports in a highly volatile global energy market all continue to influence the yen’s value.

The widening gap between Japanese rates and those of other major economies prompted the yen’s slide to a 24-year low: 132 against the dollar. JP Morgan, while analysing the massive USD/JPY differential, stated that the yen is influenced by market expectations of US Federal Reserve policy rather than by the actions of the BOJ.

“While BoJ interventions could create short-term risks, they are unlikely to affect the main factors driving the yen’s depreciation. Despite the bank’s recent departure from negative interest rates, the yen remains tied to the US economy, as shown by a strong rally after a US CPI report in March 2024,” Dr Park remarked.

What awaits the Yen in 2025?

In January 2025, the BOJ increased the key benchmark interest rates by a 25-basis-point rise to 0.5%. While the decision indicates that the Japanese economy is developing as expected after the high inflation reading, this rate hike fuelled the yen to trade higher against the dollar.

On February 24, the yen rose in Asian trade, on track for the fourth straight profit against the dollar, hitting a 12-week high on strong investment demand. The central bank’s Vice-Governor Riyuzu Himuno said the path of monetary policies will depend on data, especially wage growth in both 2024 and 2025.

As per the recent data, Japan’s GDP growth accelerated in Q4, in turn raising pressures on BOJ policymakers. The odds of a BOJ March 2025 interest rate hike rose by 0.25% to 80%. The currency, meanwhile, has strengthened to around a two-month high against the dollar in the 149 zone.

Investors, in February 2025, snapped up the yen, pushing it to 149.95, as stronger-than-expected GDP data fuelled speculation of further BOJ tightening, lifting Japan’s benchmark 10-year government bond yield to a fresh 15-year high.

In the opinion of Sayuri Shirai, a former member of the central bank’s board, the BOJ could increase interest rates in March if US President Donald Trump implements his proposed tariffs, intensifying domestic inflation.

“At the start of February, new tariffs on imports from Canada and Mexico were delayed for a month. However, a 10% tariff on all Chinese imports has been implemented. These tariffs could escalate global inflation,” Shirai noted.

Shirai indicated that the BOJ is likely monitoring the tariff situation closely. March could be an appropriate time to increase rates, given the current high domestic inflation. Despite the broader Japanese economy’s weakness, Shirai told investing.com that the central bank must continue to raise interest rates to counter the weak yen and to combat rising costs of food and energy.

Shirai concluded by stating that Japan is experiencing cost-push inflation largely due to the weak yen. If this weak yen is exacerbating inflation and causing significant issues for Japan’s economy, the BOJ should acknowledge this and continue to raise rates.

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“With the milestone of 2,000 stores now in sight and the 30th anniversary of our founding coming up next year, we have decided to entrust the next CEO to CRMO Hisae Morii, believing that passing the baton to a next-generation leader who can understand the current times will evolve Starbucks into an even more attractive brand in Japan,” departing CEO Takafumi Minaguchi said, according to Global Data.

Who Is Hisae Morii?

In August 2018, Hisae Morii began working for Starbucks Coffee Japan as the Chief Marketing Officer. In October 2023, she was promoted to her current position. Upon her appointment as CEO, Morii said, “I have a great deal of respect for the path that CEO Takafumi Minaguchi and previous Starbucks partners have taken, and I hope to take their ideas and work with our customers, partners, and the community to create a new future.”

Before joining Starbucks, she served as the brand manager, Vice President of Marketing for Unilever’s Thai business, and Marketing Director for the consumer-packaged goods giant’s Japan division. In August 1996, Starbucks made its first foray outside North America by opening its first location in Japan. After the United States, China, and South Korea, Japan is the company’s fourth-largest market in terms of stores. Starbucks Coffee Japan opened a new location in Tokyo’s Ginza neighbourhood in February 2025, bringing its total number of locations to 2,000.

Hisae Morii expressed her deep respect for her predecessor’s leadership and her excitement to work with the local community, staff, and customers to create a new Starbucks in Japan. She emphasised her commitment to supporting innovation while maintaining Starbucks’ close ties with Japanese customers. Morii is seen as a representative of the next generation of executives who will strengthen Starbucks’ brand presence in the country, with outgoing CEO Takafumi Minaguchi expressing confidence in her leadership.

To ensure that its locations are “deeply rooted in the communities they serve,” Starbucks Coffee Japan plans to open 100 new locations annually and is launching a store renovation programme in 2025. This latest development follows Starbucks’ announcement that 1,100 corporate and administrative staff would be laid off as part of its reorganisation plan.

Starbucks Japan is expected to continue growing under Hisae Morii’s leadership, with a focus on digital innovation, sustainability programmes, and regional store concepts. Under her direction, the company is likely to shift toward more customer-focused experiences and greater community involvement. Thanks to her extensive experience and strategic vision, Morii is well-positioned to lead the next stage of growth in one of Starbucks’ most significant overseas markets as the company expands its presence in Japan.

Starbucks Japan Unveils New Matcha

Meanwhile, Starbucks is launching its second cherry blossom frappuccino of the season, the Matcha and Sakura Warabi Mochi Frappuccino, which is expected to debut in Tokyo around March 21. With matcha powder added to the creamy base and sakura flavour incorporated into the jiggly pieces of warabi mochi (a jelly-like bracken starch confection), this vibrant pink-and-green beverage combines traditional Japanese flavours in a delightful mix.

Depending on how the ingredients are mixed, the classic components explode with flavours that can be fruity, floral, or green. The drink is topped with a mound of whipped cream and drizzled with sakura and strawberry sauce. While the latte captures the freshness of cherry blossoms with its milky tea-pink hues, the Frappuccino highlights the striking contrast between pink and green, said to allow drinkers to savour “the afterglow of sakura.”

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According to immigration authorities, 25.8 million foreign visitors were drawn to Japan in 2023, a six-fold increase from 2022. The Japan Tourism Agency claims that they spent a record ¥5.3 trillion (£28.3 billion) together. The government of Japan has set an ambitious target to welcome 60 million tourists and spend ¥15 trillion by the end of the decade.

A sensational comeback

In January 2024, Japan saw the arrival of over 2 million visitors gracing its, marking the eighth consecutive month of such numbers. According to data from the Japan National Tourism Organisation (JNTO), the January tally nearly matched December 2023’s figure of 2.73 million, which had set an all-time high for that month. Both the December 2023 and January 2024 tourist arrival figures remained on par with the 2019 tally. During that year, Japan received a record-breaking 39.9 million tourists.

“While tourism from China remains below pre-pandemic levels, with mainland Chinese visitors once constituting a significant portion, there are positive signs of recovery. Chinese visitors numbered 415,900 in January, representing a notable 33% increase from the previous month. Additionally, Japanese department stores reported robust sales of luxury goods and duty-free items in the first half of February, partly attributed to Lunar New Year celebrations,” TravelBiz Monitor reported.

Both tourist arrivals and spending have remained on a greener pasture for Japan and that bodes well for the nation’s economy. In 2023, visitors surpassed the JYP 5 trillion-mark, exceeding the government’s set target, reinforcing the economic significance of tourism to Japan.

Building upon the success

Japan National Tourism Organisation (JNTO) is now seeking out partnerships with the social media influencers to promote the country’s raw natural beauty. And it’s a strategic move, given the fact that a 2022 survey by the Japan Tourism Agency revealed that relatives and friends (22.8%), social media (21.9%) and video-sharing sites (21.4%) were the top three sources of travel information for foreign tourists.

The government has a goal of receiving 60 million inbound tourists in 2030, with a large chunk of it being the repeat travellers. The goal here is simple; ensure that people are arriving in the country with the goal of conducting offbeat travel. In that way, the already popular tourist spots gets a breathing space, in terms of crowd management, while the less explored ones prosper economically.

A very good example here was South Korean influencer Chomad, who with over a million followers on Instagram and nearly 780,000 on YouTube, posted about his visit to a place in Japan that’s not very well known. The video, which garnered over 37,000 views on YouTube and more than 24,000 likes on Instagram, showed Chomad visiting a small village where he grilled fresh seafood with a group of ama, Japanese female divers who collect seafood from the ocean by free diving without the aid of modern equipment, at the eponymous Ama Hut, an outdoor seafood grill they operate in Mie Prefecture.

Hideki Tomioka, JNTO’s executive director on overseas promotion, told Japan Times that his department had been engaging social media influencers to promote Japan overseas since around 2017.

JNTO’s 26 overseas branches typically invite multiple influencers for every tour, which they organise independently to cater to their specific markets. The same recipe has been picked up by marketing firms, who are now beginning to involve the influencers to promote Japanese products and tourism.

One such is Carta Marketing Firm, which is now offering services utilising influencers for clients including local governments who are looking to target markets primarily in Asia. Ryosuke Sasaki, Carta Marketing’s strategy planner leading the firm’s influencer-related services, said that even within the short time frame since the venture began offering such services from August 2023, they have received an overwhelming reception among its clients.

Within the first three months, the company, which used to primarily take on domestic marketing projects, shifted its focus; now, almost 50% of its projects are ones that target international markets.

Is ‘Over Tourism’ becoming a worry?

A section of the analysts believe that Japan is unprepared for an increase in tourists and this will put additional pressure on lodging, public transportation, and the service sector at a time when the nation is already grappling with a severe labour shortage.

According to Prime Minister Fumio Kishida, sustainable tourism hinges on allowing visitors to arrive without negatively impacting the standard of living for the local population. This is part of his vision for a new “Tourism Nation.” The government in 2023 unveiled plans to increase the number of buses and taxis, increase the cost of public transportation during rush hour, and launch new bus routes.

The subtropical island of Okinawa and rural eastern Hokkaido are among the 20 “model” destinations it has designated in the hopes of luring tourists away from Tokyo, Osaka, and Kyoto, which together accounted for 64% of overnight stays by foreign visitors in the first eight months of 2023. Less emphasis will be placed on consumption and more on immersing oneself in the culture, from learning to meditate in Zen and experience mountain asceticism to crafting sake and pottery.

In the 20 areas, local government officials and residents will draw up plans in fiscal 2024, which started on March of this year, to ease traffic congestion and raise awareness about tourist manners.

The most prominent examples of “Tourism Pollution” can be found in Kyoto, the former capital of Japan and the site of many of the nation’s most well-known temples and shrines, as well as the geisha district of Gion. About thirty times as many people visited Kyoto in 2022 as lived there: over 43 million tourists.

Geisha-themed walking tours are organised by longtime Canadian resident Peter MacIntosh, who told the Guardian that locals have been finding it difficult to reconcile the disruption caused by throngs of visitors with a sharp rise in spending.

To combat the “Tourism Pollution,” the city administration now has restricted walking through the ‘geisha district’. Isokazu Ota, the local district official, told The Associated Press about the installation of warning signs, which will apply mainly to pedestrians, and those who fail to comply with the rules will face a $66 fine.

The ban applies to several blocks of Gion, but the district’s public streets will remain open to tourists. And this is not the first time that Japan has thought about implementing restrictions on tourists. In January 2024, the authorities announced an entry fee for the routes to Mount Fuji.

The tourist destination is dealing with issues like pollution, littering, and unprepared visitors. From July 2024, there will be a daily visitor limit in this destination. Around 4,000 hikers will be allowed to visit the Yoshida trail, but climbers cannot begin their activities between 4 pm and 2 am. To preserve the area further, climbers have also been asked to voluntarily contribute a sum of ¥1,000 ($6.60) per person.

The entry fee to the UNESCO-listed Itsukushima Shrine is ¥100 (53p), and later 2024, visitors visiting the Taketomi islands will have to pay an amount that has not been decided upon to support the preservation of their immaculate beaches.

‘Two-Tier’ charging: A potential solution?

As per Tokyo-based journalist Jay Allen, since more tourists are arriving the country and taking advantage of the weak currency, Japanese businesses are too raising prices. However, since the price hike has been made for both the foreigners and the locals that have left some wondering whether businesses should implement separate pricing model for tourists. Still, the talk of the town is that the businesses must raise their prices.

The Bank of Japan’s policy of pursuing a weak currency has made it harder for those staying in the Asian country to get value from their money abroad. However, foreign tourists are finding their currencies, particularly dollars, going a long way.

“That has some wondering if local businesses shouldn’t jack up prices. After all, many businesses in Japan are struggling to stay afloat thanks to rising prices. And, as the prices at the popular ski resort town Niseko show, tourists don’t seem to mind paying more than locals,” Allen wrote in his article for “Unseen Japan.”

While Tsukiji is already up-charging a bowl of seafood ramen for 5,500 yen ($37), only foreigners can pay this much. The problem here is that Tsukiji, as Japan’s famous seafood market, serves both foreigners and locals. The tourists can pay the inflated price, not the locals.

Analysts are backing a “two-tier” pricing system for the businesses, under which a bowl of ramen that costs 1000 yen for locals would cost 3000 yen for visitors. These experts call it a “reverse discount,” operating similarly to how student and senior discount prices currently work in Japan.

There are examples like golf clubs in Hawaii charging tourists more than double what locals pay. Some Buddhist temples in Thailand also charge tourists for entering, while residents can enter for free.

“The idea has some traction. Loyalty Marketing, which runs the points programme Ponta, asked 1,200 people between their teens and their 60s whether a two-tiered pricing system was a good idea. Over 60% said yes, with the numbers pretty consistent across age groups. People in their 20s agreed the most, with 33% agreeing and 32% slightly agreeing. Those in their 30s and 40s agreed the most, at 35%. Only those in their 60s were slightly sour on the idea, at around 49% with 32% slightly opposed,” Allen added.

Analysts also believe that instead of charging tourists a high price, businesses can go for a “locals discount,” subject to the people producing their proof of residence, while going for an eat out or shopping.

“On the flip side, only businesses in highly trafficked tourist areas would implement the change at first. So, it’d only impact residents who are eating out while at work or on the go. However, once it takes off in tourist traps, it’s hard to see such a change not percolating throughout the country,” Allen noted.

“My initial reaction to the idea of a two-tier system was opposition. The more I think about it, however, the more I think it could be good for Japanese businesses and Japan’s economy in general. The tourism boom shows no signs of stopping, and businesses should strike while the iron is hot,” he concluded.

The post Japan’s over-tourism dilemma appeared first on International Finance.

Kazuo Ueda stated that Japan has “made progress in moving away from zero and lifting inflation expectations” during his opening remarks at a central banking conference in Tokyo that was organised by the Bank of Japan.

“To achieve 2% inflation in a sustainable and stable manner, the Bank of Japan will proceed cautiously, as do other central banks with inflation-targeting frameworks,” Kazuo Ueda said, as reported by the Business Standard.

“While many of the challenges we face are similar to those encountered by our counterparts, some are uniquely difficult for us,” he added.

According to Kazuo Ueda, the long period of nearly zero short-term interest rates in Japan over the previous three decades makes it particularly difficult to determine a neutral interest rate.

“The absence of significant interest rate movements poses a considerable obstacle in assessing the economy’s response to changes in interest rates,” he said.

Bank of Japan Deputy Governor Shinichi Uchida stated during the same conference that Japan’s fight against ongoing deflation is almost over, but he also acknowledged that tying inflation expectations to the target of 2% would be “a big challenge.”

According to Uchida, the initial causes of deflation, such as an excess labour supply, have been resolved in part by the structural and irreversible changes to the labour market.

“We returned to a conventional monetary policy framework, aiming at a 2% price stability target through adjustments of the short-term policy rate, which means we have overcome the zero lower bound,” Uchida said.

The BOJ ended eight years of negative interest rates and other extreme stimulus measures in a historic move in March 2024 after concluding that sustained achievement of its target inflation rate of 2% was imminent.

According to Kazuo Ueda, if growth and inflation follow its forecasts, the central bank plans to raise rates to levels deemed neutral for the economy.

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Deflation incentivised savings and Japanese people were hesitant to spend as commodities got cheaper. It was difficult to get people to invest in the saturated Japanese markets. There was immense pressure on the current Prime Minister Fumio Kishida to revive the Japanese economy and his ‘New Capitalism’ policies were greatly criticised and are still debated.

Despite it all, Nikkei 225 reached a new all-time high for the third straight trading day on February 27, 2024, closing at 39,239.52. Meanwhile, the Tokyo Stock Price Index (Topix) slightly increased to 2,678.46, the highest level in 34 years. It is an indication of the Japanese economy’s forward momentum and perhaps of the success of Kishida’s economic policies.

However, the Japanese yen has underperformed, losing 6% vs the US dollar. It was trading close to its post-1990s low of 152 to the US dollar. The Tokyo Stock Exchange (TSE) has promoted greater governance, share buybacks, smaller cross-holdings, and higher dividends to reform conservative accounting standards.

As of December 2023, 78% of TSE’s Prime Market category, which includes 1,657 companies with market capitalisations over 100 billion yen (USD 666.67 million), traded below 1 and had plans to optimise capital utilisation and boost stock prices.

The disparity in interest rates has allowed foreign investors, like those holding US dollars, to purchase Japanese company stocks. Investor demand has increased even more as a result of the Japanese listed businesses’ robust profit growth and attractive values.

Optimism Ahead?

Experts predict that Japanese stocks will continue to be appealing since Tokyo is promoting corporate governance changes that should increase value.

As more foreign businesses want to diversify away from China and increase their skills in strategically important industries like semiconductors, including strengthening their ties with Japanese businesses, global supply trends are also favouring the former third largest economy of the world.

Its advances, in contrast to those of Western markets, are driven by underlying profitability from the nation’s blue-chip companies rather than startup froth or AI craze. These weren’t outcomes that Abe’s years of whip-cracking objectives could produce. SMBC Nikko Securities predicts that the profits of firms listed in Tokyo will set a record for the third year in a row.

Warren Buffett stated in his annual letter that Japanese companies’ shareholder-friendly procedures are “much superior” to the ones in the United States. The billionaire bought large holdings in five Japanese trading businesses in 2020 as an early believer. Buffett reported USD 8 billion in investment gains.

Miyuki Kashima of Fidelity said the TSE’s publication of businesses that disclosed plans boosted governance.

“Ultimately, structural change driven by such reforms will help to optimise capital allocation, while a shift to moderate inflation is supportive of growth in wages and investment,” she stated further.

London Stock Exchange data further showed that one-third of Nikkei 225 companies trade below book value, compared to 3% for the S&P 500.

Through buybacks, Japanese shareholders are obtaining greater yields than the headline dividend yield due to these measures.

MSCI Japan’s dividend yield was 2.23, more than MSCI World’s 1.9. ETF manager WisdomTree reported that MSCI Japan’s shareholder yield, which includes dividends and share buybacks, was 3.34, higher than MSCI World’s 2.91.

Foreign investors invested 6.3 trillion yen in Japanese equities in 2023 due to attractive values. Most observers feel outsiders undervalue Japan.

Through a tax-exempt Nippon Individual Savings Account (NISA), Japanese households are investing in stocks.

Trump Trades

Japanese brokers are now focused on stocks that will benefit if Donald Trump wins and the United States-China relationship worsens. Global interest in Japan’s rising equities markets is rising.

Nomura, Japan’s largest brokerage, produced a strategy note in February 2024 identifying more than 50 companies that analysts believe might profit if decoupling accelerates, Trump delivers hefty tax breaks, and Chinese corporations stay unwilling to invest.

After Trump announced that he would impose tariffs on China that could exceed 60% and pledge reforms to “completely eliminate” US dependence on China in critical areas, Nomura’s research, which its author said had drawn strong interest from fund managers, was published.

In another paper, Japanese investment major Daiwa Securities examined the likelihood of a Trump victory and its potential impact on Tokyo-based stocks, arguing that Washington would likely be tougher on China.

Brokerages are utilising additional techniques to attract worldwide investors to a soaring Japanese stock market as the Nikkei 225 and Topix indices approach all-time highs hit in December 1989.

Japan’s government and corporations are discreetly preparing for a Trump victory in November 2024. Three ministry officials told the Financial Times that they had convened “What if Trump?” sessions to prepare for his presidency.

Nomura’s list of winners from increased US-China decoupling, a geopolitical outcome many of the Japanese corporate sector dreads, focuses on companies with sales skewered toward the US.

Subaru, Kikkoman, Komatsu, and Toyo Suisan, a maker of cheap ramen noodles that have become popular in the US as inflation rises, are included.

“It is not just a matter of China’s economic cycle, it is about the uncertainty that would arise from a Trump victory. If the US-China trade relationship becomes more uncertain, Chinese companies will find it harder to invest,” said Nomura chief equity analyst Yunosuke Ikeda.

Ikeda said the latest Japanese earnings season and forward projections showed the possible impact of United States-China decoupling.

Companies with increased US sales outperformed consensus predictions, but those exposed to Chinese consumer demand and the investment cycle reported disappointing results.

Although the Chinese economy’s stagnancy contributed to that divergence, Ikeda said US-China decoupling will remain a big danger for Japanese companies.

Even as geopolitics divide Washington and Beijing, many globalised Japanese companies can navigate US and Chinese marketplaces.

However, decoupling strains those talents and could help US-heavy earnings-based companies like Seven & I, Taiheiyo Cement, Sony, and Kyocera, Nomura noted.

Kishida’s economic policy will emphasise human resources, science and technology, innovation, start-ups, and green and digital transformation to generate growth. The Japanese Cabinet will soon approve the action plan and mid-year economic policy framework.

Some lawmakers believe the Prime Minister may call a quick election to cement his power.

The Liberal Democratic Party (LDP) and its little ally Komeito are unlikely to lose to disorganised opposition parties, but a poor election performance could cost Kishida his job.

Given high inflation and a labour shortage, cautious Japanese corporations offered yearly wage raises of more than 3% at 2024’s wage talks to attract workers.

Kishida’s government is pressuring Japanese companies to raise wages and boost employment flexibility. The government wants minimum wages to reach 1,000 yen this year, up from 961. Only time will tell if Kishida can usher in a new golden dawn for the Japanese people but for now, the far-eastern economy is a paradise for investors.

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Till recently, economists across the globe believed that by the end of the decade, China’s gross domestic product, expressed in US dollars, would surpass that of the United States, capping what many people believe to be the most spectacular economic rise ever.

But this year, Beijing’s policies—such as its zero-tolerance for COVID-19 and attempts to control real estate speculation—have stifled development, dimming the outlook for China’s economy.

Economists are becoming more concerned about China’s longer-term prospects as they reduce their projections for 2022, with unfavourable demographics and high debt levels likely hampering any recovery.

In one of the most recent modifications, the United Kingdom think tank Centre for Economics and Business Research predicts that China will surpass the United States as the largest economy in the world two years later than it predicted when it made its last prediction in 2020. It now anticipates that it will occur in 2030.

The Japan Center for Economic Research in Tokyo has indicated it expects the passing of the baton won’t happen until 2033, four years later than its prior projection.

Some economists doubt that China will ever overtake the United States.

Former United States Treasury Secretary Lawrence Summers said China’s aging population and Beijing’s rising tendency to engage in corporate matters, combined with other problems, had prompted him to drastically decrease his forecasts for Chinese growth.

Lawrence Summers draws comparisons between projections of China’s development and prior claims that Japan or Russia would surpass the United States, predictions that now seem absurd.

“I think there is a real possibility that something similar would happen with respect to China,” Lawrence Summers said.

Researchers argue the significance of GDP rankings and wonder if anything will change even if China overtakes the United States.

The United States will continue to have a significant impact because of the strength and openness of its economy. For many years to come, it is anticipated that the dollar will remain the global reserve currency.

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According to a statement from Tokyo-based Telexistence, the robot arms are currently in mass production and are intended to refresh drinks in freezers.

Later this month, Telexistence will be deployed in FamilyMart shops in Japan throughout significant urban regions, relieving store employees and helping to fill the gap left by a declining labor force in the nation.

The devices, known as TX SCARA, or Selective Compliance Assembly Robot Arm, are primarily autonomous, with remote piloting as a backup option in case the artificial intelligence malfunctions or runs into unexpected objects. According to Telexistence, each unit may replace one to three hours of labor per store daily.

According to Tomohiro Kano, general manager of FamilyMart, one of the fundamental management issues for FamilyMart to retain stable store operations is the fall in Japan’s labor population.

The newly freed up time could be redirected towards improving the shop floor and providing customer service in many stores in Japan.

For the use of the robot, its upkeep, and the help of remote personnel who may operate the arm using a virtual reality headset as needed, FamilyMart will pay Telexistence a monthly charge.

According to Telexistence, bots can operate 98% of the time without assistance from humans.

Telexistence worked with Microsoft and Nvidia, two of the biggest names in American technology, to build the bots’ technology. In order to optimize restocking duties, the SCARA arms process information using Nvidia’s Jetson AI platform and store and access sales data using Microsoft’s Azure cloud infrastructure.

FamilyMart now operates 16,000 conbini—convenience stores—across its home market, but Telexistence and Microsoft claim they intend to spread the technology over the entire world. In order to grow internationally, Telexistence will next focus on the more than 150,000 convenience stores that exist nationwide.

Image credit: Telexistence

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The surge in inflation was fuelled primarily by rising food prices and the dissipation of previous mobile charge cuts. The economists think that Japan’s price rises will speed to the central bank’s 2% objective in the coming months.

Takumi Tsunoda, senior economist at Shinkin Central Bank Research Institute said that the nationwide inflation may rise to 2% in April-June. He also added that inflation may not keep accelerating further as the pace of the energy price is slowing.

The increase in the Tokyo core consumer price index (CPI) was quicker than the median market prediction of 1.8%, followed by a 0.8% rise in March. The index excludes fresh food, which is a variable factor but includes energy goods.

In the overall reading, Tokyo’s CPI climbed 2.5% in April from the previous year, the sharpest rate of inflation since October 2014. The report indicated that the fading effect of last year’s mobile fee reduction pushed up the total CPI by 0.80 points, while non-fresh food costs pushed it up by 0.17 points.

According to a government official, to-go sushi packages, hamburgers and bread saw the biggest price hikes among food items in April. Also because of the government’s fuel subsidy schemes to cut gasoline and other energy expenses, energy prices in Tokyo grew 24.6% year-on-year in April, slower than in March. Posting the first increase since March, the core CPI in Tokyo excluding fresh food and energy items rose 0.8% in April.

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Aramco decided to divide the IPO into two sections. The first phase will include debuting a portion of Aramco’s shares in the Saudi stock exchange later in 2019. The second phase will include the listing of the company’s shares in an international platform by 2020 or 2021.

Aramco had earlier announced its decision to sell 5 percent of its shares in an initial public offering (IPO) to fund its plans of expanding into sectors beyond oil.

Although the plans for the Aramco IPO were to be executed in 2018, it did not materialise due to various reasons. Aramco initially planned to raise $100 billion dollars through the IPO, but the final number remains unclear.

The officials have stated that the no decisions regarding the Aramco IPO has been finalised yet.

The impending exit of UK from European Union has led to uncertainties in the country’s markets which might affect the IPO if the shares are listed there. The on-going protests in Hong Kong have brought the country on the verge of recession, thus removing it from the list of destinations most favoured by Aramco for its international listing.

Aramco stated that the execution of IPO will depend on the global market conditions.

Tokyo Stock Exchange has reported complete willingness for the listing of Aramco’s shares in its market.

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