Here we go again…
Any ideas where it’s going from here?
This is just my uninformed take so take it with a grain of salt. Personally I think Japan’s economy relies a lot on tourism which is why there was a big bounce back right after tourism opened again. Nothing new about that take but my guess is that now that tourism has been open for a while the Yen will just start getting back to pre-tourism levels until Chinese citizens are able to travel here again. Then there will be another spike. Then another gradual decline.
I love Japan but looking at the culture I don’t see a lot of evidence to be confident in their ability to stay competitive in the next 10-15 years with the rest of the world. They do have some unique niches but my understanding is that there is a lack of innovation and competitive cutthroatedness that encourages stagnation. There’s a lot of other reasons that I won’t get into right here but please remember that these are just my personal opinions.
I’m curious what everyone elses’ takes are on the future of Japan’s economy? I love living here but a lot of work here feels like a dead end especially when I talk to foreigners that have lived here a long time. Would love to hear some experiences/opinions to the contrary
29 comments
Japan has an export heavy economy not a “tourist” economy. The Bank of Japan loves this. Suck for those of us who want to travel or import junk food though.
My guess is due to the US debt ceiling issue.
If a deal is reached to allow more gov spending, more Treasuries flood the market, reducing it’s value and increasing it’s yield. Japan likes buying US treasury bonds.
As for Japan’s long term economic prospects…. Japan seems to be on board in revitalizing it’s semicon and tech industry in an attempts to wrench the marketshare away from China now that sanctions have been imposed. Unlike Europe and the USA, I think Japan actually has a chance at being successful at chip manufacturing seeing that they have the infrastructure and experience for it.
It’s the new normal. I gave up on the idea that the ¥ will return to its highest anytime soon. If you watched the news you see that is not a minority opinion. So you need to take that loss into account when making a decision and I decided to leave. I would love to return to Japan at a better time, but will not let it in the way of my current decision.
Japanese yen is the most fucked of all the modern currencies. They can never raise rates even a little because of the debt. Inflation is going to get worse and worse.
The Bank of Japan will intervene again at 150. They still have $1T in US treasuries they can offload to help the exchange rate, but the dollar is inflating as well. No fiat currency is safe. Protect yourself by buying assets.
> Any ideas where it’s going from here?
A. Economic collapse from unregulated capitalism and corruption
B. Economic collapse from declining birthrate (arguably the same as choice A)
C. Economic collapse due to climate change causing mass migration / food shortages / mass casualties
The question is just which will come first.
When you said Japan economy relies on tourism, it showed how the post is based on common misconceptions. Tourism is prob not much more than 1 or 2 percent of the economy, at most.
Japans economy is based on high tech supply chain, auto industry, finance/banking..etc. I mean name a country that’s has a economy as advance and diversified as Japan. Prob only a handful of countries at most.
As long as you earn and spend in yen, there is no need to worry I guess ? Rest all is speculation. No body knows when the ojisans at bank of Japan will start selling dollars to prop up the currency.
I wonder what happened to all of the people who when we hit 120 were absolutely sure this is a temporary thing and that by next year it’ll be back to the 100s again. I think some people were also waiting to convert a lot of money.
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Anyway tourism, while valuable, is such a small part of the overall picture and demand for yen that it probably has almost no affect on the rate. There are lots of factors but the easiest to understand is that USD has high interest rates now, and the BOJ refuses to raise rates here and have made comments saying so. Makes it a lot more attractive to convert to buy USD and enjoy those interest rates.
The exchange rate is irrelevant for most people living in Japan, even foreigners if you’re a long term resident. Just look at the actual reality, cost of living is reasonable and housing is super affordable. Things are pretty great.
If the economy is “growing” but a 1 bedroom apartment costs $3000/month like in Toronto, what good is it for the average person?
Great to live in Japan and earn USD. Time to hedge your earning potential and start looking for ways to stop getting paid in yen.
*there is a lack of innovation and competitive cuttthroatedness that encourages stagnation*
Let me tell you a little story that happened yesterday. My dog peed on a woman’s leg. He was playing in the off-lead area, wandered across to this woman who noticed him. She then saw him cock his leg and piss all down her trousers. She didn’t move away, she just stood there and made a weird whimpering noise as my wife ran across to get him to stop. But too late.
This isn’t the first time that has happened too. He’s young, and we’re still training him, but I’m still amazed that the woman didn’t just move away as soon as he lifted his leg up.
But that’s what happens in Japan. Even when they’re being pissed on and the solution is obvious, everyone is too paralyzed to do anything about it. So they just stand there, and take the piss.
Tourism accounts to only 2% of GDP in Japan. In Thailand it accounts for 5.5% of annual GDP. I think your analysis isn’t very accurate here.
… I see you’re not an economist or even know anything about the Japanese economy, but that’s ok.
First:
Japan is an EXPORT heavy economy, as in they import raw materials (because Japan has VERY limited raw materials of its own) and then sell the finished products to other countries for a profit. E.x: Japanese Car companies (Toyota, Nissan, Honda etc.) and electronics (Sony, Nintendo etc.)
Second:
The yens current weakness is mostly caused by the difference between central bank policies which are in place. **Japans** central bank is still using quantitive **easing** (Cheap borrowing, INSERTING money into market), *all the while* most of the world is now doing quantitive **tightening** (Expensive borrowing).
The BOJ’s (Bank of Japan) very loose money policy (YCC – A form of quantitive easing to supply CHEAP money 『i.e NO to low Interest on loans』 to the market at large, in the hopes inflation will take off and **stay** at levels around 2%
This is while the **US, Europe and most of the world** is battling very high inflation (7~20%) and are desperately TRYING to slow down the inflation by doing **quantitative tightening** (Squeezing money OUT of the market)
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Thirdly:
What you said holds some truth: it’s true that the weak yen is attracting a whole bunch of tourists to Japan and that this tourist boom is generally beneficial to Japan, but at the same time because of the weak yen you need More people to equal the same amount of spending as a stronger yen would have gotten you.
Of course, something is always more than nothing so it is a good thing that tourists are coming back.
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Damn this god long….
TL.DR: Japan is an EXPORT focused economy, therefor a weak yen has often been seen as an advantage as it can undercut other countries appeal (Japan made being cheaper)
Japans Central bank is still giving out money, while most of the world is reigning in money from the market; The difference of this is causing money to flood out of Japan and into higher interest rate giving countries, Causing a weak yen.
The weak yen is attracting many tourists (Yen weakness = Cheaper for them) while at the same time, a weak yen means that tourists spending weighs less then it would have if the yen was strong.
>Personally I think Japan’s economy relies a lot on tourism which is why there was a big bounce back right after tourism opened again.
You couldn’t be more wrong lol… Just because Japan is a ninki tourist destination doesn’t mean that the country heavily relies on tourism.
It’s not the yen weakening. It’s the usd strengthening. The usd is a long term short against anything now because once economy goes risk on and cuts rates, usd will fall.
On economy, japan’s economic growth will remain limited partly because its government is tired and can’t reinvigorate. Very nepotistic society at the top in politics and companies, also a lot of prohibitive taxes at private wealth level – look at the inheritance tax (most rich people heading to Singapore). China is nepotistic too but not as tired as the LDP and the GDP/capita still leaves a lot of room for growth. If China GDP went from $12k usd per person to $17k usd per person (ie how much productivity each person on average generates in dollar terms), it’s not a big ask, but that’s already enough to leapfrog another 50% and make it as big as US + Japan. You get a vicious cycle where young people feel unmotivated, they’re stuck on some crappy salary by developed country standards and prob earning less than Koreans and Chinese soon and become more demotivated (yes yes country side is still poor yes yes, but I’m talking about just the major cities added together which is already Japan’s population).
You look at something like Japan’s largest company. It’s Toyota. But Toyota already behind the 8 ball on EVs. Tesla and BYD absolutely dominating. Maybe Toyota can catch up with hybrids eventually, I doubt it’ll ever catch up on the BEV race, but point is you see how easy it is to cede market share once you’re asleep at the wheel and the Americans and Chinese continue to compete at fast speeds. Same way Sony ceded to Samsung etc. When I grew up Japanese products were amazing, certainly you feel much less about that these days.
In general though it’s obviously not that bleak, not like this is Egypt… the economy is still third in size although pales vs US and China. India is catching up and should pass it soon. For me the main issue is how do you motivate the next generation to work and if you provide the wrong incentives, if on average people know they’re making a lot less than counterparts overseas, well you lose even more talent and momentum quickly. I don’t really think the LDP which is tired and old can turn the tide. It’s a slow burn and has been for a while.
Someone mentioned semiconductors. I mean Japan is pretty low end products vs American, still not up there with your Nvdias, AMDs, ASMLs etc even though they’re all different parts of the supply chain. If anything if I’m not backing US/Taiwan, I’d bank on Chinese in this sector or some beaten company like Intel (being smashed by Nvidia) or Qualcomm (being smashed by Mediatek). Also no one’s going to stop China getting there because the Govt is with the private enterprise, they’re all in… can delay that’s all, even guys like Ray Dalio and Schwarzman have said this multiple times. Here the Govt is asleep. At the wheel. I have to look at Japanese US Chinese stocks all day and I certainly don’t think Japan about to do anything groundbreaking here.
> Any ideas where it’s going from here?
No
I can’t even go back to America the way the yen to the dollar is right now. I’m so sad
> Personally I think Japan’s economy relies a lot on tourism
Did you check the statistics?
Japan is one of the top manufacturing nations in the world. Yes China has taken a lot of that at the lower end, and Japan has had to go to higher end segments, but they are mostly still competitive, whether it’s semiconductors, optics, or automotive. This will still be a major part of Japan’s future for decades.
Japan is also unique. Culturally unique, gastronomically unique, etc. and I think that will help keep it relevant for a long time whether it’s trade or tourism or even agriculture.
The quality of life in Japan is quite high. Maybe not as high as some European or Scandinavian countries but certainly the highest in Asia. And as others have said, it’s very affordable, certainly in comparison to most other first world nations of a similar GDP/capita.
I’d like to ask OP where s/he plans to move and what you’ll do elsewhere. If you can do better elsewhere, you should probably move. I’d also ask OP where you’ve traveled or lived beyond Japan and your home country. Japan’s not perfect by a long shot but it’s quite a safe and comfortable place to live at the moment.
The forecasts I have looked at predict it to go slightly below 130 before the end of the year, slightly better than now but not by much.
I don’t know but my Jack-o’-lantern futures are through the roof. I expect them to peak right around November 1st.
The reason for The fallingyen has been the monetary easing policy of the Bank of Japan. They think that the inflation rate is currently too low so they’re trying to maintain it at 2% per year. According to some comments made by the governor of the Bank of Japan it seems as though they are prepared to intervene if the rate should fall too far. Interest rates in Japan which affects the rate of exchange has been negative for the past 20 years and it seems as though because Japan has been or was going through a period of deflation then they are trying to increase the level of inflation in the economy in my view I think that they are trying to achieve it too quickly which is having a very negative consequence for the individuals living in Japan Having a very high rate of currency exchange is good for Japan because it’s an export oriented economy but not so good for those of us who want to import things and Japan does import a lot of things chief among them being energy because Japan doesn’t have a source of fossil fuels so all of it has to be imported and this is one of the main drivers for the high exchange rate. It leaves to be seen how the Bank of Japan will react to this increase in the next few months. Source!………………….. I trade Forex markets
exchange rate is primarily driven by the Bank Of Japan and US federal interest rate differences. The policy differences between both agency is what driving the exchange rate you see mainly. BOJ is stubbornly sticking to its YCC measures to drive steady 2 % inflation and US is using interest rate to tame their high inflation, totally opposite of each other hence why the differences across exchange rate of japanese yen.
Japan Nikkei index recently broke its 30000 yen mark for the first time in 30 years since the bubble economy in the 1990s. From this, japan overall economy seems to be experiencing their best time in 30 years although with many asteriks. Tourism is just a small part of it and does not explain the exchange rate differences.
>Personally I think Japan’s economy relies a lot on tourism which is why there was a big bounce back right after tourism opened again.
>
>I love Japan but looking at the culture I don’t see a lot of evidence to be confident in their ability to stay competitive in the next 10-15 years with the rest of the world. They do have some unique niches but …
You are the type of person who only learns about Japan through travel vloggers and believes that Japan is losing to China and Korea because its market share in, what, consumer electronics like TVs and smartphones is decreasing aren’t you?
My dear friend, let me tell you about the concept of ‘core technology’, which is the true source of Japan’s strength and influence on the global stage.
A lot of ‘core’ technology behind the production of consumer electronics, in which Japan may appear to be losing ground, is actually held by Japan itself. And these fields are **not** widely known to the general public. Anyone can purchase TV parts and assemble them to create their own brand of TV, but these small components/basic materials, as well as the tools/equipment and machinery for manufacturing, are provided by Japan. Japan’s strength lies in their vast business-to-business (B2B) sector, where they possess a huge amount of exclusive technologies that other countries must acquire from them if they want to produce their own goods. And unlike the highly competitive market for TVs or PCs where companies often have to reduce their profit margins to attract customers, when you possess exclusive indispensable shits, you can raise the price as high as you can. That’s a true gold mine right there. (Keyence is a good example. They have a ridiculously high-profit margin of above 40%, it’s absurd.)
And no, these areas of expertise are not merely “some unique niches” but rather the foundation of a country’s strength in comparison to others. Unless other countries figure out how to create everything from scratch, which took Japan and other advanced nations billions of dollars in research and nearly a century to accomplish, I doubt they will lose their competitive edge to the rest of the world in the next 10-15 years.
I kind of agree that you said “A lot of work here feels like a dead”, but tourism industry is not that heavy. The manufacturing industry weighs more than the other industry although the import is higher than the export last year.
I admitted that Japan is a great country, but somehow, the whole country is stagnant for a long time under my observation. After almost one year of job search, I’m even considering going back to my country and looking for a new chance.
Optics is narrowed because you focused at the forex market.
Locals only care about the amount of inflation, in reality it isn’t as high compared to many other countries. Look at the Consumer Price Index (CPI), Japan is at the lower end.
There’s no need for constant inflationary growth, many countries will start to look like Japan soon due to the stagnation of birth rate. The global consumption will slow down eventually, the earlier you get to terms and deal with it the better.
unlike any central bank in the rest of the developed word (well maybe China), BOJ controls both ends of the yield curve, (while US just controls the short end with target rates). So what it means is they completely control the financing of the money market, and they kept the interest rate artificially low throughout. If you have money that you can park in USD or JPY, where the former earns you 4-5% a year, and latter gives you nilch. What would you choose?
If you can borrow Japanese yen (while paying also the nilch rate), and then buy 1 USD at 140 JPY to hopefully earn 4-5%, would you?
And if you would, then imagine all the other Mrs Watanabe and Tanaka also doing the same with their cash/saving. Then you will see why USD got pushed up to 140, then high and higher. This is what we called “carry trade”.
Obviously it’s is no so simple (US debt ceiling crisis for e.g.) but the market sentiment is JPY low interest rate will continue despite inflation pressure. (japan import most of their raw material and energy sources from abroad, paying in JPY, low JPY means foreign goods get expensive relatively, the cost will get transferred to normal everyday goods for everyday people).
BoJ new chairperson like his predecessor tend to think the inflation is a passing pain that will do good for the economy in the future, should eventually transfer to higher wages (I am not so sure, Japanese corporate culture and herd mentality is too strong for people to ask for higher wages, but maybe it will this time around?)
As for economy, Nikkei is doing great following Warren Buffet’s recent investment into Japan’s top trading houses. For precisely the same reason, even though if the stock doesn’t do great he is still buying them super cheap on strong dollar. Not to mention the hot money flowing into the country , again, because of how fucking cheap everything is.
Hopefully you have invested into the stock / housing market (average new apartment sales YoY in downtown Tokyo has broke through 1 Oku, and more than 60% YoY), cuz they are probably the only thing normal people can buy that’s relatively inflation proof.
Source: https://www3.nhk.or.jp/news/html/20230518/k10014071361000.html
Edit: as for the future. It’s anyone’s guess, most of the world is trying to decouple from China and Japan is trying to retake that opportunity, but from the supply chain crisis during corona we know that’s hardly possible in any foreseeable future. Even with Japan steel at full capacity would not meet 20% the supply of China’s steel from research report (of the internal research report of my company). Japan lacks the innovation and infrastructure of propelling them back to the top economic powerhouse and is trapped between China and US. The question is as economical as political. I would think it would improve somewhat but does not really benefit the normal day people (just like so many companies making record profit this year but you don’t hear too much about pay raise even amidst some of the worst inflation this country has seen in the last 3 decades).
Japan is playing a catching up game in terms of manufacturing, they really fumble the bag especially in things like cars (everyone did e-cars and they stuck with hydrogen cell, of which I am kinda glad to see them finally come to fruition as some downtown buses uses fuel cells now, though not entirely and only as hybrid), as well as semiconductor fabrication. Kishida have a strong message of wanting to side with the G7 and take over the possible vacuum that de-Chinaization would bring, but it’s too soon to see if it is any thing concrete or just hot air.
The long term cause of this is BOJ policy. The short term cause is the difference between BOJ and US Fed policy.
No one, not even experts, know which way the yen is headed in the next 2-4 months. Longer term, if BOJ keeps rates low and US has them higher, it is plausible yen will continue to decline. But in the next 6-12 month, NO ONE can reliably predict.
Those holding or needing to spend in or save in USD Euro or sterling can hedge risk by dollar cost averaging into the needed second currency on a monthly basis.
Prestia Bank (SMBC) and other Japanese banks offer automated ways to do this in multi-currency savings accounts.
With the average tourist spending $1,321 in Q2 2018, tourism in total currently equates to approximately **0.8%** of Japan’s gross domestic product (GDP), although the broader impact is estimated to equal about 2.2% of GDP. And here is a [graph](https://www.statista.com/statistics/731610/domestic-and-foreign-tourism-contribution-to-gdp-japan/) that shows the breakdown between domestic vs foreign tourism contributions.
“Another domestic factor is the huge trade deficit. The trade deficit is increasing amid rising resource prices due to the impact of the recent war in Ukraine. As a result, the Forex market will see an increase in transactions to sell yen and buy foreign currencies in order to make payments.
The rising prices of all commodities, including crude oil and natural gas, nonferrous metals, and agricultural products, have swelled Japan’s trade deficit. According to preliminary trade statistics for May 2022, exports increased +15.8% y/y. Imports also increased +48.9% due to an increase in crude oil, coal, and other commodities. As a result, the trade balance stood at 2,384.7 billion yen. The trade balance has been in the red for 10 consecutive months. Exports have increased for 15 consecutive months, while imports have increased for 16 consecutive months.
Japan is a country poor in resources has no choice but to import energy and agricultural products. Since the U.S. dollars are needed for imports, it is necessary to sell the yen to buy the dollar. Therefore, there is a high possibility that the yen will remain weak if resource prices continue to rise.” ([source](https://www.jluggage.com/blog/japan-news/why-is-japanese-yen-so-weak-dropping/))