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The Honolulu Advertiser
Posted on: Monday, December 17, 2001

Drop in yen hits visitor industry hard

Advertiser Staff and News Services

As Hawai'i struggles to revive Japanese tourism, it is facing another challenge — the dollar-yen exchange rate.

Spurred by U.S. military successes in Afghanistan and diverging economic outlooks for the United States and Japan, global financiers have been snapping up the greenback, sending it cruising to some of its highest values against the yen — and other world currencies, including the euro — since the Sept. 11 terrorist attacks.

Last week, the Japanese yen fell to a three-year low against the dollar, making travel to the United States more expensive. Friday the yen was at 127.93 per dollar, its lowest point since October 1998.

For Hawai'i, the situation comes at an already crucial time as the state tries to lure back skittish Japanese travelers. Since Sept. 11 the rate of Japanese tourists arriving in Hawai'i has been down almost 50 percent from a year ago. Japanese arrivals improved last weekend with an influx for the Honolulu Marathon, but by midweek they had fallen back to about 50 percent of where they were a year ago.

"It's definitely bad news," said Sharon Weiner, group vice president of administration for DFS, which depends heavily on Japanese tourists for business. "We are in untenable territory."

Weiner said that sales were off 60 percent to 65 percent in November from the same time last year, and had recently improved to being off just 50 percent to 55 percent.

Weiner hopes Hawai'i gets help from the marketing muscle of the Hawaii Visitors and Convention Bureau. "We know there's demand," she said. "The younger people are going to be willing to travel if the price is right."

Indeed, the state has launched an aggressive campaign to attract Japanese tourists by playing host to 1,000 people from the Japan Association of Travel Agents, according to Yujiro Kuwabara, planning manager for the Japan Tourism Bureau. "We try very hard to let Japan people understand that Hawai'i is still the same," said Kuwabara.

Though Ryokichi Tamaki, vice president of JALPAC International Hawai'i, said the booking status for January, February and March shows that Japanese visitors are coming back — "slowly but steadily" — he admitted that "they're really concerned about the dollar/yen rates all the time."

"The Japanese tourist is a big spender," said Tamaki. "And we need their spending."

Tamaki said he thinks that much of the problem lies in the fundamental Japanese economy, which will take a long time to regain strength.

Others agree that the outlook remains shaky.

"There's no question about it, as the yen goes up and down in value, so does their spending," said Bob Taylor, president and chief executive of Maui Divers Jewelry, a retailer almost totally dependent on dollars from travelers.

Japan's economy hurting

Taylor said that in his 22 stores statewide, Japanese business is down 60 percent from a year ago at this time, while spending from Mainland visitors is down 15 to 20 percent.

Taylor said that while he thinks the domestic market will recover fully by the middle of next year, he believes the Japanese market is improving much more slowly, and will not completely recover until 2003.

For some retailers, however, the change in the exchange rate means good news. The fall in the value of the yen helps businesses that are buying goods from Japan to sell in Hawai'i, including Shirokiya at Ala Moana Center.

"For people like us who import merchandise from Japan it's a lot better," said Walter Watanabe, the Shirokiya store manager. "We are able to give better prices to our customers. Our food items, houseware and Oriental items are all coming in from Japan."

Dollar gap widening

Some experts say they expect the yen to continue its plunge, with some predicting the dollar could even climb into the low 130-yen level by the middle of next year, a level it hasn't hit in nearly four years.

The Bank of Japan is often quick to intervene in currency markets to tweak the value of the yen, especially when it rises too high against the dollar. This time, however, officials aren't shy in showing support for its downward drop.

"Looking at overall fundamentals, the yen was a bit too strong. Now it's started correcting itself," said Haruhiko Kuroda, currency director at the Finance Ministry. "I don't think the moves are that big a deal."

Analysts say the recent currency movements reflect rising optimism about the U.S. economy.

"It's not over yet, but the military progress was faster than expected, and the bounce back was better than expected," said Ron Leven of Lehman Bros. in Tokyo. "The September events had global effects, but there is renewed optimism for the United States."

With victory in Afghanistan seemingly sealed, investing in the United States no longer looks as risky as it did just after the Sept. 11 terrorist attacks. People are less worried about economic demise, follow-up hijackings and the threat of an Afghan war leaping regional borders.

But battlefield victories aren't the only good news for the dollar. International economic developments are also tilting in the United States' favor, meaning more people are willing to put their money in dollar-denominated investments.

"We have seen good progress in the war, but that's not the only factor," said Ryo Hino, an economist with JP Morgan in Tokyo. "The U.S. economy isn't looking that great. But the picture is bleak in Japan. And things are going to get worse."

That message was underlined Wednesday when the Bank of Japan issued a survey showing business sentiment had slumped to its lowest level since the financial crisis days of March 1999.

That only soured the mood in Japan, which is wallowing in recession and battling record unemployment of more than 5 percent.

Europe also strapped

In Japan, unemployment stands at an all time high, the banking sector is saddled with mounting bad loans, and corporate bankruptcies are on the rise.

Europe, meanwhile, got more bad news last week, when the European Central Bank cut the region's growth forecast for next year to a range of 0.7 to 1.7 percent, from a June forecast of 2.1 to 3.1 percent.

Against the euro, the dollar hovered just under 90 cents for much of the week.

In Germany, Europe's economic engine, economic growth has been slashed to 0.75 percent this year, from a healthy 3 percent in 2000. Hopes were dimmed again just last week, when industrial output data showed an unexpectedly sharp drop in October.

In the United States, unemployment stands at its worst level in more than two decades.

But orders to American factories rose in October, the first increase since May, and the Federal Reserve has cut interest rates for the 11th time this year. Many economists see the latest rate cut as a sign that the Federal Reserve feels it has done enough to lift the country out of recession.

Another good sign is that the country's first recession in a decade is keeping a lid on inflation, which is at an anemic rate of 1.9 percent.

In the short run, the euro may hold its own against the dollar or even get a boost from the Jan. 1 introduction of euro bills and coins.