Japanese yen surges

On Wednesday, Japanese Finance Minister Shunichi Suzuki chose not to address recent changes in the currency market. The yen had surged against the U.S. dollar overnight, reaching its highest point since early May.

This appreciation of the yen comes as market expectations shift, with traders speculating that the interest rate gap between Japan and the United States may close. Some believe the Bank of Japan might raise interest rates further in the coming week, contributing to the yen's recent gains.

"If I make comments as finance minister on currency levels and developments, they may unexpectedly affect the foreign exchange market. As always, I decline to comment on this matter," Suzuki told reporters after a meeting of the Group of Seven finance ministers in Rio de Janeiro.

JPYUSD

On Wednesday, Japanese Finance Minister Shunichi Suzuki, Chief Cabinet Secretary Yoshimasa Hayashi, and top currency diplomat Masato Kanda avoided commenting on foreign exchange matters, as the USD/JPY pair dropped to its lowest level in over two months, according to Reuters.

When the Bank of Japan (BoJ) announced on July 28 that it was adjusting its 0.50% yield cap on 10-year Japanese Government Bonds (JGBs) to a target level, the currency market reacted unpredictably. The yen (JPY) initially dropped by 1.4% against the U.S. dollar (USD), then surged by 2.5% before retreating and losing most of those gains.

The Japanese Yen (JPY) continues its upward momentum against the US Dollar (USD) for the fourth consecutive session, approaching its 12-week high of 151.93 reached on Thursday. This recent strength in the Yen is likely driven by traders unwinding carry trades in anticipation of the Bank of Japan’s (BoJ) policy meeting next week.

Policies of Bank of Japan

When the Japanese yen (JPY) experiences a significant surge, the policies of the Bank of Japan (BoJ) often play a crucial role in influencing the currency’s movement. The Bank of Japan is anticipated to raise interest rates at its meeting next week, leading short-sellers to close their positions and strengthening the JPY. Furthermore, the BoJ is expected to announce plans to scale back its bond purchases as part of efforts to reduce extensive monetary stimulus.

The JPY has experienced significant volatility in recent years. From January 2021 to October 2022, it depreciated by one third against the USD. It then regained approximately one third of those losses between October 2022 and January 2023, only to decline once more. Various factors have influenced the JPY over the past two and a half years, and the future trajectory of JPY/USD will likely depend on how these factors evolve moving forward.

“The yen is buoyed by an unwind of carry trades given heightened risk aversion from a tech selloff, and still heavy speculative short positioning,” said Wei Liang Chang, macro strategist at DBS Bank Ltd. “Unease among yen bears is also deepening with Japanese monetary policy possibly tightening next week, in contrast to coming rate cuts by the Fed and ECB. Further yen strength into the BOJ meeting next week cannot be discounted.”

Businesses in Japan consider charging tourists more amid surge in visitors

In the first half of the year, Japan welcomed a record-breaking 17.78 million foreign tourists. In June, the top arrivals were from South Korea, China, Taiwan, and the United States. Businesses in Japan are exploring a dual pricing system for foreign tourists and locals due to a significant increase in international visitors and the persistent weakness of the yen.

1. Surge in inbound tourists
   According to data from the Japan National Tourism Organization (JNTO) released on Friday, visitor arrivals from January to June increased by 65.9% over the 10.7 million visitors in the same period last year and 6.9% over the level in 2019. As Japan grapples with a surge in tourists due to the yen's depreciation, an increasing number of restaurant and attraction operators are considering higher charges for foreign visitors. This shift has raised concerns about whether it aligns with the country’s desired image and marketing strategy.
2. The upcoming two-tier systems for locals and foreigners
   According to the Nikkei newspaper, spending by foreign visitors has increased fivefold over the past decade and now ranks as Japan’s second-largest “export” category, following automobiles.
3. Osaka Prefecture has also considered introducing fees for foreign visitors to address over-tourism, though this proposal has met with resistance in light of the upcoming 2025 Osaka World Exposition.
4. While two-tier pricing systems with discounts for locals have long been implemented at municipal facilities like hot springs baths, extending this model to foreign tourists is still uncommon and contentious. Critics argue that such practices might appear exploitative.
   

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