Holiday destination: A man walks past an electronic board showing the rate of the Japanese yen versus the US dollar along a street in Tokyo. With the yen at its weakest, tourist spending is expected to jump in the country. — AFP
SINGAPORE: Travelling to Japan and splurging on omakase meals, Suntory and Nikka whiskies, and anything from Onitsuka Tiger sneakers to Uniqlo basics just got even cheaper for Singaporeans.
The yen hit a record low of 111.6 against the Singapore dollar on Monday, its weakest since 2010, according to financial data provider MarketWatch’s records.
The Japanese currency is also at its lowest level against the US dollar, momentarily touching a low of 151.8 on Monday, MarketWatch data showed.
The yen’s fall continued over the weekend following new Bank of Japan (BoJ) guidance released last Thursday that its monetary policy will likely remain loose for now.
The central bank said it will continue to monitor inflation levels amid high import prices and impending wage hikes, according to a summary of opinions from the BoJ’s latest meeting on Oct 31.
The BoJ is aiming to keep prices stable at an inflation rate of about 2% after factoring in wage increases from 2024 onwards. Japan’s largest labour organisation said in October that it will demand a pay increase of at least 5% in 2024.
The BoJ currently projects that the year-on-year rate of increase in the consumer price index for all items excluding fresh food will remain high at 2.8% in 2023 and 2024, before falling to 1.7% in 2025.
“As there is still a distance to go before achieving the 2% target with the virtuous circle between wages and prices, it is important for the bank to keep supporting the momentum for wage hikes through continuation of monetary easing,” it said in the summary.
The virtuous circle between wages and prices refered to a positive feedback loop where increases in wages lead to higher consumer spending which, in turn, drives demand for goods and services and prompts more production.
Since 2016, the BoJ has set a 0% target for 10-year Japanese government bond (JGB) yields, which serve as a benchmark for the country’s interest rates, and kept short-term rates at minus 0.1% under a negative-rate policy to encourage growth.
During its October meeting, the BoJ introduced more flexibility into the long-term interest target, using 1% as a new reference point for 10-year yields, but said it will also continue to conduct large-scale JGB purchases to keep yields around 1% on a sustained basis.
Analysts say this is all expected to keep the yen weak against currencies in markets with tighter monetary policies such as the United States as well as Singapore, where the dollar is allowed to appreciate against other currencies within a specified range.
“The BoJ’s latest policy decision is inadequate since we had seen the possibility of a surprise shift to monetary policy normalisation,” said MUFG Bank’s head of global markets research Teppei Ino in a report on Nov 6, referring to a change in the BoJ’s unconventional negative-rate policy to higher interest rates.
As a result, the markets are viewing its decision as dovish and are unlikely to view this as a shift in monetary policy aimed at curbing the yen’s weakness, Ino said.
“Until this comes into view, which is likely to be in December at the earliest, we expect yen sellers will continue to feel reassured given the disparity in monetary policy.”
Still, the summary of opinions revealed suggestions that the BoJ is looking to eventually ditch its negative-rate policy. The BoJ must communicate with the market in preparation for a “world where interest rates exist”, it said, “with the future exit from the current monetary policy in mind”.
Analysts at Nomura noted that the BoJ is now very slowly but steadily moving towards policy normalisation, such as terminating its negative interest rate policy.
“If markets come to price in the BoJ’s next actions with higher certainty, it could lead to an inflection of the current US dollar versus yen trend,” they said in a Nov 10 report.
UOB analysts expect the BoJ to eventually remove the negative-rate policy at its January 2024 monetary policy meeting and scrap its control of long-term interest rates in March.
It expects continued yen weakness until the end of the year, before the Japanese currency gradually strengthens against the US dollar and Singapore dollar in 2024.
Until then, Japan is likely to remain an attractive destination for holidaymakers.
Over two million tourists visited Japan in September, which is 96.1% of the volume in the same month in 2019, the Japan National Tourism Organisation said in October.
With the yen at its weakest, tourist spending will likely jump, too.
According to another study by the Japan Tourism Agency, inbound visitors to Japan between July 1 and Sept 30 spent a total of 1.39 trillion yen, which is 17.7% more than the same period in 2019.
This equates to 211,000 yen per person, up from 159,000 yen per person in 2019, the study found. — The Straits Times/ANN
