Japan’s weakened yen is bad for trade, but fantastic for tourism

The yen’s slide may ripple through Japanese companies beyond exporters, underscoring pressure on Prime Minister Shinzo Abe to prevent the currency rebounding from close to the lowest since 2010.

Softbank Corp. and advertising agency Dentsu Inc. stand to reap higher earnings from abroad after taking part in the nation’s record $113 billion of overseas acquisitions last year. Hotels and theme parks are set to benefit from increased tourism, with a 40,000-yen ($430) room at Tokyo’s Imperial Hotel about $70 cheaper compared with three months ago.

The widening benefits and the Feb. 16 decision by the Group of 20 nations not to criticize Japan over its currency may help Abe to maintain a market rally and public support ahead of upper-house elections this summer. Nomura Holdings Inc. sees a 10 percent fall in the yen against the dollar boosting growth by as much as 0.3 percentage point, moves that may depend on whether the next Bank of Japan governor, due to be nominated next week, enacts aggressive monetary easing.

“Abe needs to maintain the impression that the economy is improving,” said Hideo Kumano, chief economist at Dai-Ichi Life Research Institute in Tokyo and a former central bank official. “He needs a governor who’ll carry out more aggressive monetary easing to help prevent a rebound in the yen.’

The benefits of a weaker currency are shown in the Nikkei 225 Stock Average’s 25 percent rise in the past three months, with the benchmark gaining 0.9 percent at 10:32 a.m. in Tokyo. The yen was 0.1 percent lower, extending its 13 percent fall since Nov. 20.

Import bill

The costs of a weaker currency were highlighted by data today showing a record trade deficit in January due to a rising import bill.

Royal Bank of Scotland Group Plc says higher profits from overseas at firms such as Dentsu, which last year paid $5 billion for the U.K.’s Aegis Plc, may filter into domestic wages through higher bonuses. Almost seven in 10 voters have positive expectations for Abe’s economic policies, according to a newspaper poll published Feb 4.

The currency will be at 92 per dollar this quarter and 95 by the end of the year, according to the median forecast of economists surveyed by Bloomberg News. That may help to spur economic growth after three quarters of contraction through December, with a separate survey showing that gross domestic product will probably rise 1.4 percent this quarter.

Still, Westpac Banking Corp., the most-accurate foreign-exchange forecaster in the fourth quarter, is betting that the yen will be at 80 per dollar by the end of this year as it sees the central bank struggling to satisfy investors.

Rising expectations

‘‘Expectations are rising that the BOJ governor will deliver something more aggressive,” said Masamichi Adachi, senior economist at JP Morgan Securities Asia in Tokyo and a former BOJ official. “International investors need to be convinced that the regime has really changed.”

The Aegis deal means Dentsu will more than double the share of its revenue from overseas, according to research by Bloomberg Industries, while the weaker yen helps to boost the value of income earned abroad. The company expects its net income to rise by nearly a fifth in the fiscal year that starts in April on a 12 percent increase in revenue.

Shares in Softbank, which agreed to pay $20 billion for control of Sprint Nextel Corp. last year — the biggest-ever foreign acquisition by a Japanese company — gained the most in nearly four months on Feb. 12 after Sprint’s revenue topped forecasts.

Earnings impact

“The impact on earnings of these acquisitions will appear this year and may accelerate after that.” said Yoshimasa Maruyama, chief economist at Japan’s third-largest trading company Itochu Corp., which agreed to pay $1.69 billion for two units of Dole Food Co. in September. “Abe’s timing was good.”

Confidence in the economic outlook rose in January to the highest since 2006, according to the Cabinet Office’s Economy Watcher survey of merchants including retailers, taxi drivers and others who deal directly with consumers.

In the latest survey, a tourist hotel in Japan’s northern island of Hokkaido reported that foreign visitors had increased. A department store in western Japan said that inquiries about imported brand items have risen as shoppers expect prices to climb.

South Korean visitors to Japan rose 35 percent in January from a year earlier, while those from Thailand rose 33 percent, according to figures released yesterday by the Japan National Tourism Organization. The Thai baht has risen more than 18 percent against the yen in the past three months, the most among Asian currencies, while the won has gained 15 percent.

Tokyo Disneyland

Oriental Land Co., operator of Tokyo’s Disneyland and DisneySea parks, said its third quarter earnings exceeded forecasts on visitor numbers. The company expects an 11 percent rise in net income next fiscal year.

The prime minister will decide his nominee for a successor to BOJ Governor Masaaki Shirakawa next week after a trip to Washington, Chief Cabinet Secretary Yoshihide Suga told reporters yesterday.

Potential candidates cited by analysts and local media reflect a range of policy outcomes. Asian Development Bank President Haruhiko Kuroda and former BOJ Deputy Governor Kazumasa Iwata have urged more expansive easing. Toshiro Muto warned of the dangers of prolonged loose policy when he was deputy governor five years ago even as he now says his views have changed.

The Yomiuri newspaper reported today that Muto may be removed from the government’s list of candidates, without citing where it got the information.

Energy prices

While the weaker currency will be a boon for parts of the economy, it is pushing up import costs. Japan relies on other nations for almost all of its oil and gas and about 60 percent of its food on a calorie basis, according to government figures. The shutdown of nuclear plants after the 2011 earthquake adds to the nation’s reliance on imported fossil fuels.

Japan’s trade deficit swelled to a record 1.63 trillion yen in January as imports increased 7.3 percent, the Finance Ministry said today.

Officials have highlighted the economic risks of a yen that weakens too far. Deputy Economy Minister Yasutoshi Nishimura signaled in an interview last month that the government may prefer a yen stronger than 110 per dollar.

With assistance from James Mayger, Andy Sharp and Takashi Hirokawa in Tokyo and Cynthia Li in Hong Kong. Editors: Andrew Joyce and James Mayger.

To contact the reporter on this story: Keiko Ujikane in Tokyo at [email protected]. To contact the editor responsible for this story: Paul Panckhurst at [email protected].