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Impact of the Weak Yen on Japan's Tourism and Luxury Market

GOOVER DAILY REPORT August 3, 2024
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TABLE OF CONTENTS

  1. Summary
  2. Luxury Tourism Surge
  3. Dual Pricing Strategy
  4. Transportation and Infrastructure
  5. Tourism Management
  6. Conclusion

1. Summary

  • The report 'Impact of the Weak Yen on Japan's Tourism and Luxury Market' analyzes how the depreciation of the yen has ignited a surge in luxury tourism and stimulated significant economic activity in Japan. The report highlights key areas such as the notable increase in foreign tourists purchasing luxury goods, the record-breaking number of tourist arrivals, and the resulting dual pricing strategies implemented by businesses to manage local and international demand. Additionally, the report explores developments in transportation infrastructure, particularly the role of the Shinkansen in enabling this tourism boom, along with regulatory challenges arising from new mobility technologies. The potential impact of a future eruption of Mount Fuji and strategies for managing large tourist volumes are also examined, demonstrating how these dynamics influence Japan's tourism landscape and economic strategies.

2. Luxury Tourism Surge

  • 2-1. Weak Yen Attracting Foreign Shoppers

  • Tourists from around the world are drawn to Japan, taking advantage of the weak yen to purchase high-end clothing and handbags at discounted prices. This economic factor has spurred an unprecedented boom in tourism, attracting savvy shoppers from Asia and elsewhere. The depreciation of the yen has led to cheaper prices for luxury goods in Japan compared to other countries, which in turn has driven tourists, particularly from China, to seize the opportunity to splurge on designer items in Japan rather than at home.

  • 2-2. Impact on Luxury Brands

  • Luxury brands like Louis Vuitton's parent company LVMH have faced challenges due to the currency volatility, which impacts their profit margins. The weak yen means that luxury goods become cheaper in dollar terms in Japan, resulting in lower profitability for these companies in the Japanese market. This situation is further complicated by the difficulty of adjusting prices to reflect the currency's fluctuation. The influx of tourists buying luxury items at lower prices in Japan has accordingly affected the brands' sales and margins in other regions, such as China.

  • 2-3. Record Tourist Numbers and Spending

  • Japan has witnessed record-breaking tourist numbers, with June alone seeing 3.1 million foreign visitors. Annually, the country is on track to break the pre-pandemic record of almost 32 million foreign arrivals set in 2019. This surge in tourism is projected to lead to significant economic benefits, with tourist spending expected to reach 8 trillion yen ($54.74 billion) this year. The growth is primarily driven by tourists from South Korea, China, and Taiwan, who accounted for substantial portions of all tourist arrivals and expenditures in Japan.

3. Dual Pricing Strategy

  • 3-1. Consideration of Charging Tourists More

  • Businesses in Japan are contemplating a dual pricing system for foreign tourists and local residents in response to an increase in inbound visitors and the persistent weakness of the yen. Hokkaido Tourism Organization has proposed lower prices for locals, particularly in the northernmost prefecture known for its scenic beauty and winter resorts. The organization plans to trial a two-tier discount scheme this autumn. An example includes the Himeji city's plan to potentially increase the entrance fee for foreign tourists visiting the Himeji Castle significantly, while retaining a lower fee for residents. This is partly due to concerns over possible damage to the castle from excessive visitors. Japan witnessed a record influx of 17.78 million foreign tourists in the first half of the year, amplifying the relevance of this discussion.

  • 3-2. Economic Contributions of Foreign Tourism

  • Foreign tourists have substantially boosted Japan’s economy, with spending by these visitors increasing fivefold over the past decade, making tourism Japan's second-largest export category after cars. Regions like Osaka have also pondered implementing fees for foreign tourists to manage over-tourism despite facing opposition due to events like the upcoming Osaka World Exposition in 2025. The economics of dual pricing is underscored by significant spending from foreign tourists, as seen in areas like Tokyo's Toyosu Senkyaku Banrai where prices reach five times what locals generally pay.

  • 3-3. Controversy and Public Opinion on Tiered Pricing

  • The concept of dual pricing remains controversial. Instances of price differentiation are not new; many hot spring baths supported by municipalities have offered discounted prices to locals. However, extending this practice to foreign tourists has sparked debate. Surveys indicate some support for the idea, with over 60% approval in specific surveys. Yet, there are concerns about potential discrimination and negative perceptions. Critics argue that such practices could lead to segregation and resentment among tourists. Business owners, however, justify these actions by pointing out the higher costs associated with accommodating foreign tourists, including language services. Despite notable outliers like Tamateboko, a Tokyo seafood buffet restaurant using a two-tier pricing structure, the broader acceptance of this system remains contentious.

4. Transportation and Infrastructure

  • 4-1. High-Speed Rail Developments

  • The Shinkansen, also known as the 'bullet train,' has significantly transformed transportation in Japan since its inception in 1964, just before the Tokyo Olympics. The Tokaido Shinkansen, the first line, connects Tokyo and Osaka, covering a distance of 320 miles and reducing travel time to 2.5 hours. Currently, Japan's high-speed rail network spans nearly 2,000 miles, connecting major cities across Honshu, Kyushu, and Hokkaido, making it the world's second-most extensive high-speed rail network. The safety record of the Shinkansen is remarkable, with no passenger fatalities in its 60-year history. The fastest train, the Hayabusa Shinkansen, runs on the Tohoku and Hokkaido lines, reaching speeds up to 199 mph. Future advancements include the L0 Series Maglev, expected to become the world's fastest train, reaching 375 mph and set to enter service in 2027.

  • 4-2. Regulations on New Mobility Technologies

  • The rise of electric suitcases, equipped with built-in batteries and electric motors, has created regulatory challenges in Japan. Classified as motorized vehicles, these suitcases require registration, safety equipment, and a driver's license to be legally ridden on roads. Incidents involving foreign tourists using them on public roads have led to increased regulatory scrutiny. Airports like Narita, Chubu Centrair, and Kansai International have advised travelers against riding electric suitcases within their facilities. Japanese traffic law categorizes these devices as 'motorized bicycles,' necessitating mirrors, turn signals, helmets, and liability insurance. Recent advancements in motor and battery technologies have also led to a rise in other new mobility devices, prompting discussions on creating new vehicle classifications to address these technologies.

  • 4-3. Implications of Mount Fuji Eruption

  • In light of potential future eruptions of Mount Fuji, the Japanese government is developing measures to mitigate damage from ash falls in Tokyo and surrounding areas. An eruption could disrupt urban infrastructure, paralyzing rail networks and causing power outages. The worst-case scenario estimates that ash accumulation could reach 10 cm in areas like Tokyo's Shinjuku Ward 15 days post-eruption. Even smaller ash amounts could immobilize railways and render roads impassable except for four-wheel drive vehicles. An estimated 490 million cubic meters of ash would require removal, significantly more than the waste from the 2011 earthquake and tsunami. Additionally, eruptions could impact telecommunications and water and sewage systems. The last eruption of Mount Fuji occurred in 1707, lasting 16 days and leaving a 4 cm thick ash layer in central Tokyo.

5. Tourism Management

  • 5-1. Tourist Volume Management Strategies

  • Effective management of tourist volume is crucial to maintaining both tourist satisfaction and the integrity of destinations. Strategies include advanced booking systems for high-demand experiences, as mentioned in the planning stages for visits to popular sites like Kyoto's Kamagawa Odori dances and tea ceremonies. Additionally, leveraging luggage forwarding services, such as the popular takuhaibin service, helps tourists travel light while visiting multiple locations, reducing congestion in transit areas. The Japanese rail system, despite its complexity, offers solutions like the Japan Rail Pass and reserved seating, which help to control and manage the flow of tourists across the country.

  • 5-2. Ease of Travel and Cultural Experiences

  • The efficiency of Japan’s transportation system significantly contributes to the ease of travel and enhances cultural experiences for tourists. The Shinkansen (bullet train) and other rail services play a major role in connecting major cities and lesser-known destinations, ensuring smooth and quick travel. Reference documents emphasize the practicalities of booking train tickets and using transit planners to navigate complex routes. Additionally, services like mobile Wi-Fi routers and prepaid transport cards (Welcome Suica) ensure that tourists remain connected and capable of accessing diverse cultural experiences, such as tea ceremonies and culinary tours.

  • 5-3. Promoting Lesser-Known Destinations

  • Promoting lesser-known destinations is an effective strategy to manage tourist volume and provide diverse experiences. For instance, travel bloggers like Grace Cheng advocate for cities like Kyoto, Sapporo, and Osaka over the often-crowded Tokyo. Additionally, articles highlight gems such as Shima in Mie Prefecture and Nikko, which offer serene environments and rich cultural experiences away from the main tourist trail. Encouraging visits to these areas not only alleviates pressure on popular destinations but also helps tourists discover Japan’s varied landscapes and local cultures.

6. Conclusion

  • The weak yen has had profound impacts on Japan's tourism and luxury markets, leading to a significant influx of foreign tourists eager to capitalize on favorable exchange rates. This influx has prompted businesses to adopt dual pricing strategies, distinguishing between local and international consumers, which has been a subject of controversy. The Shinkansen continues to be pivotal in supporting the burgeoning tourism sector, offering efficient travel solutions across major cities. However, the rise in tourist numbers and the advent of new technologies like rideable suitcases necessitate updated regulatory frameworks to ensure safety and efficiency. Another critical aspect is the potential eruption of Mount Fuji, emphasizing the need for preparedness to mitigate infrastructure and societal disruptions. Despite these challenges, Japan's attractiveness as a diverse tourist destination indicates positive economic trends, though careful management of tourist volumes, infrastructure, and regulatory policies will be crucial in sustaining long-term benefits and avoiding pitfalls such as over-tourism and infrastructure strain. Looking forward, there is significant potential for enhancing practical applications, from promoting lesser-known destinations to adjusting regulatory measures for new technologies, to bolster Japan's tourism and economic resilience.

7. Glossary

  • 7-1. Yen [Currency]

  • The depreciation of the yen has made Japan a more attractive destination for foreign shoppers, particularly for luxury goods. This has resulted in a significant influx of tourists, influencing consumer behavior and economic dynamics.

  • 7-2. LVMH [Company]

  • LVMH is a luxury brand that has been affected by the shift in consumer behavior due to the weak yen, with customers opting to purchase items in Japan rather than their home countries, impacting the brand's global profits.

  • 7-3. Shinkansen [Technology]

  • The Shinkansen, Japan's high-speed rail, has played a crucial role in transforming transportation, supporting the tourism boom by providing efficient and fast travel options across major cities.

  • 7-4. Mount Fuji [Geographical Feature]

  • Mount Fuji, an iconic symbol of Japan, poses potential risks with its possible eruption. The Japanese government is preparing for such events to minimize disruption to infrastructure and maintain tourist safety.

8. Source Documents