The Japanese Yen keeps tumbling, and there’s a lot of factors that go into that. But shouldn’t the massive number of people visiting Japan and buying yen help boost their currency?
In: Economics
That is one factor in a much larger picture, high national debt and imports and exports play a more significant role.
Yes, it does, but it’s only a factor among many.
Exchange rate’s strength benefits different part of the economy of a country.
Tourism and exports benefit from a lower exchange rate since your goods are cheaper
Imports suffer from the opposite reason and especially energy related products since oil is priced in US$ everywhere
For exemple , price of Japanese LNG imports ( and Asian LNG in general) is largely indexed on the Oil Barrel price
It depends how much percentage of the country’s entire GDP is tourism. For tourism-heavy countries, perhaps. But for Japan, and if statista is correct with their sources, Japan’s tourism only accounts for around 1% of the country’s GDP (international tourism, which I assume is what you’re referring to, and not domestic tourism which just circulates the money around). So even if tourism exploded in Japan, it’s still a drop in the bucket for the entire country’s GDP, which influences the strength of the currency.
Tourism makes up a percentage of economic activity, but by no means significant enough to have immediate impacts. There would need to be a dramatic increase in tourism numbers to have an unexpected effect. As the expected effect is already built in. All that could be happening is it is slowing the decrease on pressures on the currency, instead of halting it.
These kinds of effects have a lag time, and are heavily dependent on sentiment. So until the economic data comes in that leads to more positive indicators, investors that drive growth will tend to remain pessimistic.
Tourism brings in foreign currency, but there’s more too it than that.
Many of the jobs that service tourists are pretty low skill, low pay jobs; and your economy as a whole might be in a better place if those people were working in higher skill, higher paid jobs.
What you’re suggesting would only really help if people were buying the money to *keep* it. But since people are buying it and then immediately spending it, the supply isn’t getting smaller. and, while it might seem like the demand is going up, because they’re not keeping that money, it isn’t really.
Now the wider economy is much more complex than that, and tourists coming in and spending money in the country will be good for the economy for a variety of reasons, and have a number of other impacts. Those impacts will then also affect the overall value of the national currency etc ect. But specifically the purchasing of Yen by tourists won’t be doing much if anything.
How would that work exactly? More tourism means more people are buying your currency, and then spending it locally, but unless there’s a short supply of it to drive up the price, the value of that local currency is still based on external evaluation. That nation overall then has more *foreign* currency, but so what? Sure, Japan is making more ‘money’ with a lot of tourism, but it’s specifically not in yen.
The strength of a currency has much more to do with what can be exported from that country for what local price, and tourism does very little to change that.
Tourism is a relatively weak driver of demand for currency because when exchange rates go up it’s very easy for tourists to either go somewhere cheaper or simply stay home. It’s what economists call “highly elastic”, because demand responds a lot to changes in price.
Exchange rates increase more from foreign exports that are not as elastic. Commodity exports are a clear example, because demand does not respond as easily to price changes and the products themselves might only be found in a few places.
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