Weak yen squeezes tourism
By Glenn Scott
Advertiser Staff Writer
The three young Japanese women were everything retailers could hope for Friday as they paused at Ala Moana Center, checking a map of the mall layout.
Richard Ambo • The Honolulu Advertiser
They had arrived a day earlier from Tokyo on what they happily called a shopping vacation. All on initial visits to the Islands, they were investing their first full day in Ho-nolulu checking out the shops where, they said, they intended to buy brand-name handbags, shoes, cosmetics and dresses.
Japanese visitors, such as these strolling through Waikiki, no longer consider O'ahu a "discount island" for shopping.
"It's cheaper than Tokyo," said Sachiko Nakamura, one of the trio.
Lately, though, even the most determined Japanese shoppers are suffering a hit to their buying power — and the state's tourism-related businesses are feeling an equivalent dent in their sales —Êas the Japanese yen has gradually declined in value against the dollar.
Nakamura and friends, for example, on Friday paid 124 yen to the dollar — about 15 percent more than they would have paid at the same time last year. The rate, they said, would not deter their ambition to buy. They just wished they could buy more.
As that case suggests, the weakening Japanese currency hasn't killed Japanese tourism, but it has reduced Hawai'i's affordability for an important segment of visitors. Business people say the higher yen has a corresponding and worrisome effect on their operations.
"It certainly does have an effect on everybody in the visitor industry," said Paul Kosasa, president of ABC Stores.
The weak yen also has some influence on the number of Japanese visitors who come. A monthly report released last week by the state Department of Business, Economic Development & Tourism showed that the 150,109 Japanese visitors who arrived in March represented a 6 percent drop from a year earlier.
Hawai'i's economy today relies less on Japanese tourism than a decade ago, when the collapse of Japan's so-called bubble economy had drastic consequences here. But Japanese tourists still represent about a third of Hawai'i's total, and their traditionally high-spending shopping habits make them a crucial part of sales strategies in the tourism industry.
Exchange rates reflect the confidence of international currency traders in the direction of an economy, although governments can intervene in markets, investing reserves to prod rates in certain directions. Many economy watchers believe Japan has generally allowed its yen to weaken as a means of keeping its key export economy competitive. But what is conducive for exports can be limiting for those who pay higher exchange rates to travel.
"Ten years ago, Japanese tourists thought of O'ahu as a discount island. But now, they don't think so," said Taka Kono, president of Japan Report, a market research company based in Honolulu.
For businesses here, the effect of the weak yen depends on the particular business and its customer base. Each has its own formula for estimating the point where a softening yen begins to hurt operations. At ABC Stores, for instance, Kosasa said the yen's rise and fall are mitigated by a wide range of clientele.
But Kono said some businesses that appeal primarily to Japanese tourists already are in trouble.
"Some of the retailers are no longer asking me how to get their sales up," he said. "Now their question is how to survive."
Geoff Garside, a senior vice president for Marriott International hotel operations in Hawai'i, Asia and the Pacific, said Japanese tourism has sustained itself even as the yen reached the 120s.
"I think if the yen trends north of 130, we'll see some problems," he said.
Garside, though, made the point that the effects are incremental as the yen softens. Travelers don't necessarily cease; they simply spend less. And companies like his, he noted, are structured to offer travelers choices based on price.
"Even if they trade down," he said, "we have brands to catch them."
Few experts are predicting significant improvements soon in the yen's outlook. On Friday, amid reports that the chairman of the Bank of Japan intends to step down next month, the yen fell again, reaching 124.01.
Paul Chertkow, head of global currency research at Bank of Tokyo-Mistubishi, told Bloomberg News Service last week he sees the yen trading around 127 in May. Another analyst, Patrick Laub with Landesbank Girozentrale Hessen-Thueringen, estimated the yen will range from 115 to 130 for the year.
Some experts are suggesting that the yen could slide even further in currency trading as investors find few signs of an immediate turnaround in a Japanese economy that has been sagging under the weight of banking problems and political inaction for most of a decade.
"Some analysts on the Mainland now are talking about a second lost decade for Japan," said David McClain, an economist specializing in Japan, as well as dean of the University of Hawai'i, Manoa, College of Business Administration. "There is a fair amount of pessimism."
Not all of the news out of Japan in the past week has been pessimistic, however. Some hope emerged in the form of an unlikely new prime minister who took over with a measure of public support for his call for political reforms and economic restructuring.
Whether Junichiro Koizumi, 59, the new leader of the Liberal Democratic Party, can engineer such major renovations within the rigid ruling party is the hot new question in Japan. But as Sheila Smith, a Japan expert at the East-West Center, points out, the grass-roots support that helped Koizumi override the traditional insider system of power brokering already reflects a political change.
"Whatever he does or doesn't do, he's different than in the past," said Smith. "With the change in local participation and his strength in elections, this is not just a paste-up job. This denotes a real significant shift in the methods of determining party leadership."
Smith cautions that Koizumi's task will be enormously difficult. Even if Koizumi holds public support through elections in July, his plans for restructuring almost certainly will translate into public anxiety, she said, as people are forced to abandon their old beliefs in lifetime job security.
"I'm going to keep my eye on unemployment, where political implications are the greatest," she said.
"Most economists, both internally and externally, agree that fundamentally this is not a weak economy," Smith said. "But without the kinds of economic reforms necessary, growth is going to stall."
What would that restructuring mean for Hawai'i?
McClain said the choice of a political reformer is encouraging news for the state.
"Obviously, if he's successful in restoring Japan's economic vitality, that will be just peachy for Hawai'i," he said."
Kono sees little immediate benefit for the tourist industry here even if Koizumi pushes through economic reforms. A rebuilt Japanese economy, Kono said, may help tourism in a few more years. But the more urgent question is how businesses here will perform in the short term if Japanese spending continues to drop.
"Very honestly," he said, "businessmen in Waikiki don't care about the mid-term. Now, there is suffering already."
Glenn Scott can be reached by phone at 525-8064 or by e-mail at gscott@honoluluadvertiser.com.
