Strawberry shortcake and foreign travel: How the yen’s record slump hit Japan

Strawberry shortcake and foreign travel: How the yen’s record slump hit Japan

From food to travel, it’s hard to find an aspect of life in Japan that isn’t affected by its sinking currency.

The yen has slumped for years and hit its weakest level since 1990 against the US dollar earlier this week, pressured by expectations that the US Federal Reserve will need to keep interest rates higher for longer to tame American inflation.

For Hiroko Ishikawa, a second-generation fruit importer in Tokyo, the yen’s decline has had a major impact on his business, which was founded by his father in 1966.

His company, Japan Fraise, specializes in supplying strawberries, including large berry imports from the United States. Local farmers also produce strawberries, but not enough to meet the voracious demand for Japanese-style shortcake: a fluffy, creamy, tiered treat that’s considered a must-have for birthdays, holidays and other celebrations.

Ishikawa sells the berries to 400 customers, mostly bakeries and confectioners, across the country. The fall of the yen has made imported strawberries much more expensive.

Ishikawa estimates he has raised the wholesale price of imported fruit by 20% over the past two years. To stay competitive, he doesn’t pass the full cost of currency conversion onto his customers, choosing to absorb some of the pain himself.

“It’s been a very challenging couple of years,” Ishikawa told CNN. “It is a difficult time, and we do not expect any miracles for the next few months. We’re just trying to manage.”

He said his customers try to keep their costs down by using smaller or lower-grade fruit. Inevitably, some raise prices, mainly because the cost of other ingredients – flour, butter, milk and eggs – also increases. Rising import costs helped push inflation to 3.1% last year, a 41-year high, according to the Nikkei.
After hovering around the 100 level against the US dollar for years, the yen began a relentless decline in early 2021. This is largely because the Bank of Japan (BOJ), the central bank, has kept interest rates very low while the Fed and other central banks has raised the cost of borrowing to fight inflation.

Higher interest rates in the United States and other countries mean that investors can make greater returns on investments there than they can in Japan. This encourages carry trades, where investors borrow money in yen to invest in higher-yielding assets priced in other currencies. That weakened the Japanese currency.

On Monday, the yen briefly weakened to 160 to the US dollar for the first time since 1990, before recovering slightly as the BOJ reportedly spent as much as $59 billion to buy the Japanese currency.

“The effectiveness of such interventions is always subject to debate, as they often provide only temporary relief and may fail to address the underlying factors driving currency movements,” said Nigel Green, CEO of deVere Group, a financial advisory and asset management firm shortly after . market cycle.

There are several benefits…
The yen has lost 10% of its value against the US dollar so far this year, after declining 8% in 2023, according to Refinitiv data. It is the worst performing currency among the Group of 10 leading industrialized countries in 2024.

Even after the BOJ ended years of negative interest rates with its first hike in 17 years in March, a large gap remains between Japanese and US rates and is expected to continue, which is expected to keep the yen weak.

This has produced several benefits for Asia’s second largest economy. A weaker yen has increased the competitiveness of Japan’s exports, boosting corporate profits and economic growth.

It also helps make Japan a cheaper destination for tourists. This week, Chinese tourists celebrating the Labor Day holiday are expected to visit Japan en masse.

“Tourism is the part of the economy where the yen’s generosity is most pronounced, with Chinese tourists paying less for many things than at home,” Kit Juckes, strategist at Societe Generale, wrote in a research note this week.

Big Macs cost 50% more in the next cheapest G10 currency, the New Zealand dollar, than in the yen, he added.

Japan is a bright spot for luxury companies like LVMH. Sales in Japan rose 32% in the first quarter, thanks in large part to Chinese tourists shopping there, it said last month.

Besides tourism, the weak yen has helped boost Japan’s stock market to levels not seen since the 1980s and boosted its appeal as an investment destination for the likes of Warren Buffett.

… and many weaknesses
But the falling yen has caused a lot of pain at home and not just for small businesses like Japan Fraise. Many Japanese say overseas travel is no longer a priority, in part because their money doesn’t stretch as far overseas as it once did.

The number of Japanese people who traveled abroad last year was just 9.62 million, according to CNN’s calculations based on data from the Japan National Tourism Organization. That’s less than half of the 20.1 million travelers recorded in pre-pandemic 2019.

“Soft currency weakness has developed over the past few years,” Sean Callow, a Sydney-based independent currency strategist, told CNN.

“Japanese consumers who are used to price stability will also be affected by the increase in the price of their favorite imported goods and the surge in the cost of almost any trip outside of Japan,” he said.

At Tokyo’s Haneda Airport, Sato Hitomi, 66, “braced” the high cost of a trip to Hawaii with her husband and two grown children. It was the first, and possibly the last, such vacation for the quartet.

“I quit my nursing job, which I worked for 46 years, this March. I have been patient and procrastinated to do all the things I want to do while taking care of my parents,” he told CNN on Friday, shortly before flying.

“My son is married and has a new baby and my daughter is getting married this fall. We’re at a point where things are going to change a lot, and that’s why I want to travel. But this is the first and probably the last overseas holiday for us,” he added.

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