Bloomberg: Japan’s Tentative Border Reopening Likely to Have Limited Impact

• Bloomberg Economics expects only 14% of pre-pandemic spending
• Opening border further could harness benefits of a weaker yen

By Yuko Takeo and Yoshiaki Nohara

June 10, 2022

Japan reopened its borders to overseas visitors on package tours Friday in a move that will potentially boost the economy over time, though the initial spending impact is likely to be limited.

Prime Minister Fumio Kishida’s decision to raise the cap on international arrivals will bring an additional 6,000 foreign tourists per day, Bloomberg Economics estimates. That’s likely to generate annual spending of about 320 billion yen ($2.4 billion), or just 14% of the levels recorded in 2019.

Japan would need to fully reopen its border for tourism to deliver a serious cash injection to the economy. Such a move would also harness the upside of a weak yen by giving overseas visitors greater purchasing power, helping offset some of the negative effects like higher import costs for consumers and firms.

“Given that the yen is quite clearly weaker than it was pre-pandemic, everything in Japan is a lot cheaper for people coming from abroad,” said Mari Iwashita, chief market economist at Daiwa Securities Co. “I’d imagine they’d do quite a bit of shopping.”

So far this year, the yen is trading weaker against all 16 major currencies tracked by Bloomberg.

Consumption in Japan has been tepid to date this year, with the omicron outbreak weighing on household spending in the first three months. While the economy is expected to post a moderate rebound in the current quarter, additional tourism money would be a welcome boost to the Covid-battered hospitality sector.

“Even incremental reopening to foreign tourists will help harness wider benefits of the weak yen,” said Bloomberg Economics Senior Economist Yuki Masujima. “From retailers to restaurants and hotels, a rise in sales to foreign visitors could go some way to offsetting the impact of surging costs for food and fuel, which in part have been driven by the yen’s decline.”