Japan's weak yen beckons bargain-hunting Korean shoppers

People wait in line to convert currency at a currency exchange shop in Myeong-dong in central Seoul on Nov. 16. [NEWS1]

Korean shoppers are heading to Japan to exploit the weak yen and hunt for luxury goods available at a more affordable price point than in Korea.

More than 5.5 million visitors from Korea arrived in Japan through October this year, up 7.7 percent from the same period in 2019, data from the Japan National Tourism Organization showed. It was distantly followed by the second largest arrivals from China, which stood at 1.85 million.

The sentiment toward the neighboring country has made a sharp turn this year following the nationwide ‘No Japan’ boycott in 2019, which was sparked by Japan’s trade sanctions against Korea over historical conflicts.

The yen edged closer to its 33-year low with the dollar earlier this month, helped by Japan’s low interest rate which is kept at -0.1 percent, alongside interest rate hikes in major economies. The yen hit a two-month high on Tuesday, though it still remains weaker than it was a year ago.

Japan right now is “a heaven for shopping luxury goods,” wrote a commenter earlier this month on Jpnstory, a Naver community for travelers to Japan with more than 1.5 million members.

“Foreigners are immediately offered a 5 percent discount when they show a passport upon entrance [to a shop], and there’s also a 10 percent tax refund, making it much cheaper than duty-free shops.”

The strengthened U.S. dollar has simultaneously weakened the price competitiveness of the products sold at duty-free shops, as their price tags are determined based on dollars.

Some card companies are seeing the effects directly.

Hana Card’s overseas transactions in Japan soared 20 percent in October on-month.

“We’ve recently seen a jump in currency conversion to yen on Hana Card’s Travlog,” a travel-centered debit card that allows users to exchange Korean won into foreign currencies, said Hana Card spokesperson Lee Gyeo-rae.

“Yen accounted for 75 percent of the total foreign currencies converted last month,” Lee added.

Online shoppers are also taking advantage of the weak yen, largely purchasing wines and animations.

Direct purchases made from Japan stood at 344.9 billion won ($270 million) through the third quarter this year, up 14 percent from the same period last year, showed Statistics Korea data on Nov. 9.

While shoppers are satisfied, the weak yen could hurt Korea’s trade to a certain degree as the key export products of the two countries, like machinery and electronics products, overlap.

A 10 percent weakening of the yen against the dollar sheds 0.12 percent of Japan’s export unit price, according to a report by the Korea International Trade Association (KITA) in August.

Korea’s exports would slide 0.86 percent under the same conditions, which may not be large considering the simultaneous weakening of the won and slowing export rivalry between the two countries, the report added.

The most affected industry would be agro-fishery products, which would fall 3.5 percent, followed by a 1.8 percent deceleration of plastic, rubber and leather. Exports for chips would be down 0.6 percent.

“Japan, which battles with extended deflation and seems to be welcoming the inflation, is keeping the rate low to boost the country’s economy,” said Lee Jeong-hwan, an associate professor at Hanyang University’s College of Economics.

Japan’s nominal GDP, unadjusted for inflation, is projected to decline 0.2 percent on-year to $4.23 trillion in 2023, according to a forecast by the International Monetary Fund in a recent report.

Japan’s economy was bigger at $4.96 trillion in 2000, when it was the second-largest economy in the world.

Bank of Japan Governor Kazuo Ueda said last week the central bank will discuss the exit of the loose monetary policy when it nears the sustained achievement of its 2 percent inflation target.

Japan’s core consumer price index, which excludes volatile fresh food items, gained 2.8 percent in September from a year earlier.

“A weak yen will persist if Japan continues to keep the interest rates in the negative territory to boost growth, unless other countries start to cut their rates,” Lee added.

BY JIN MIN-JI [jin.minji@joongang.co.kr]