Japan's popular novelty stores are now slashing prices of their premium items and forced to venture down-market just to stay afloat. The reason: Fewer Chinese are willing to splurge on shopping because of the yuan's loss of purchasing power.
For instance, at the renovated jewelry section of the Isetan Shinjuku shop in downtown Tokyo, watches with $4,600 price tags have been slashed to nearly a quarter of its value just to entice buyers.
Several things get in the way of the yuan's appeal and buying capability, including exchange rate fluctuations, inflation, commodity price swings, economic growth rate and China's ongoing trade rift with the US.
For this reason, more and more Chinese shoppers are going to the malls to buy their favorite stuff. "Chinese tourists have been shopping less these days" Toshihiko Sugie, Isetan Mitsukoshi president, said.
Chinese visitors, which represent around 30 percent of total spending by foreign tourists to Japan, are very particularly especially when it comes to fluctuations in the forex market. The Chinese yuan's weakness lately has worsened a transition from the conspicuous consumer spending in the last few months, when foreign tourists would spend a good amount on appliances and other expensive items.
Market observers are now looking into the longevity of consumer spending in Tokyo after an increase in taxes of basic commodities has been imposed, raising the rate from 8 percent to 10 percent.
The average money spent on a per-trip basis by tourists in Japan, locally or foreign, has fallen 0.7 percent to 153,030 JPY in 2018, while the decline among Chinese visitors was bigger, at 2.5 percent to 224,880 JPY.
Based on a recent survey conducted by the Mitsubishi-Morgan Stanley Securities, the Chinese average dipped by 29,000 JPY for each 10 percent the yuan drops versus the Japanese currency. The yuan retreated by around the same amount between first quarter of last year, from 16.8 JPY to under 15 JPY.
According to economist Hiroshi Miyazaki, assuming the volume of foreign tourists stays unchanged, the 10 percent loss of the yuan's buying power will "pull down consumption numbers by 243 billion JPY this year," which is roughly $2.4 billion.
Miyazaki warned that this drop could spell disaster if the yuan slides back deeper. This is not pleasant news for Japanese shops and other stores whose sales rely on foreigners, and that includes the Chinese as profits from the domestic side likewise sinks.
