After more than two years of strict Covid-19 border controls, Japan reintroduced visa-free entry to 68 countries on Tuesday.
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That Japanese yen’The US dollar’s collapse has sparked some concerns in Japan, but that could encourage more travelers to revisit the country, analysts say – although they say any significant recovery in the tourism sector won’t happen without the return of Chinese tourists.
After more than two years of strict Covid border controls, Japan reintroduced visa-free entry to 68 countries on Tuesday.
Package tours are no longer necessary, reported the Japan National Tourism Organization (JNTO).
The daily entry limit of 50,000 people and the on-arrival PCR test at the airport have been removed. However, travelers from all countries and regions are still required to present a negative Covid test certificate or proof of vaccination, JNTO said.
As restrictions are eased and the yen depreciates, tourism to the country will return quickly — particularly from Asia, Jesper Koll, director of financial services firm Monex Group, told CNBC.
Koll said that while travelers from Europe and the US are important in helping Japan’s tourism recovery, “the bulk of the buzz and the bulk of the travel” still comes from places like Singapore, the Philippines and Thailand.
“The cheapness of the yen obviously increases the likelihood that tourism will be a major contributor to the economy,” Koll said domestic tourism will accelerate very, very quickly.”
In 2019, Japan welcomed 32 million foreign visitors and they spent about 5 trillion yen, but domestic travel spending accounts for just a tenth of that, according to a September release from Goldman Sachs.
The investment bank estimates that spending on inbound flights could reach 6.6 trillion yen ($45.2 billion) after a year of full reopening as the weak yen encourages travelers to spend more.
“Our approximate estimate suggests potentially larger inbound spending of 6.6 trillion yen (annual) after full reopening from pre-pandemic levels of 5 trillion yen, partly helped by the weak yen,” the statement said .
The Japanese currency plunged to a fresh 24-year low, hitting 146.98 against the greenback during London hours on Wednesday.
Japanese officials intervened in the foreign exchange market in September when the dollar-yen rate hit 145.9.
“I don’t think the yen has been as cheap as it is now in living memory,” Darren Tay, Japan economist at Capital Economics, said on CNBC’s Squawk Box Asia on Tuesday. “Tourists were already demanding that borders be reopened… So I think the weak yen will be another motivating factor for them to travel to Japan again.
Though prices for plane tickets to Japan have risen since the announcement, tourists will still get great bang for their buck when spending in Japan, Koll said.
“You can eat twice as many hamburgers and twice as much sushi for your dollar here in Japan as in the United States and even compared to the rest of Asia,” he added.
Chinese tourists ‘hold the key’
Prospects for Japan’s tourism recovery look promising, but “the overall impact on Japan’s economy may not be positive” as Chinese tourists are yet to return, Tay said.
“Chinese tourists actually account for a large chunk of what foreign tourists spent in 2019… They’re still on a zero-Covid strategy, so they won’t be returning any time soon,” he said.
Chinese tourists, who accounted for 30% of foreign visitors to Japan in 2019, may not return until the second quarter of 2023, according to Goldman Sachs.
Once China fully reopens, spending by Chinese visitors could rise to 2.6 trillion yen from 1.8 trillion yen in 2019 — 0.5% of Japan’s gross domestic product, said Yuriko Tanaka, an economist at Goldman Sachs.
“Chinese visitors are key to real recovery in inbound spending,” Tanaka said.
Without visitors from China, it could take time for domestic travel spending in Japan to return to pre-pandemic levels, Koll said. But strong demand from the rest of Asia could see domestic spending by March 2023 “relatively.” fast” to return to over $3 trillion.
As markets expect the US Federal Reserve to hike interest rates by 75 basis points in November, the yen will continue to weaken as the dollar continues to strengthen, Koll said.
“You have the widening interest rate differential [between Japan and the U.S.], and the Federal Reserve isn’t done yet. At least one more rate hike is on the horizon,” he said.
He added that the yen could weaken further towards 155 and only strengthen next spring – and that would not be the result of action from Japan, but from the Fed signaling that it has “pushed on the brakes enough”. .