Last year, Japan welcomed 42.7 million tourists, which is 15.8% more than in 2024, who spent nearly $60 billion, making the industry the second largest "export" after automobiles. The current estimate is that by 2030, the number of visitors will reach 60 million, contributing $95 billion to the Japanese economy.{#p-1786022972930-87068}
However, ordinary Japanese people are not happy, although their classic courtesy does not reflect this. My previous trip was in 2003, and the last one was last month, and in just three years, many things seem to have changed. For starters, it is now almost impossible to walk a block in Tokyo without encountering other tourists (not to mention Kyoto, where the word is invasion), although most of them go unnoticed by the Western eye.{#p-1786022972930-40828}
Since 2014, Japan has become a global tourist center (the drop in 2016 is because the data only covers up to May){#p-1786023498010-76959}
This bulk consists of: Chinese, Koreans, Taiwanese, and citizens of Hong Kong and Singapore, although Americans stand out in fourth place. Argentinians are not many (33,838 last year), occupying a distant third place among Latin American countries, below Mexicans (around 200,000, who spend the most money on their trips worldwide) and Brazilians (109,000; our neighbor has the largest community of Japanese descendants in the world, about 2 million - we have just over 111,000). Still, we have some merit as we were among the countries with the highest growth in traveler numbers, despite the fact that, along with Montevideo, Buenos Aires is the furthest capital from Tokyo in the world.{#p-1786022972930-77135}
So far this year, the number of Argentinians visiting Japan has been a record.{#p-1786023348367-96382}
Before anyone starts saying otherwise, I remind you that one of the arguments that propelled the current Japanese Prime Minister was her statement, in response to the unconfirmed rumor that tourists were kicking the sacred deer of Nara - where she is from; the deer are considered messengers of the Gods -: "Don’t you think this has gone too far?" In last year's Upper House election, the Sanseito, which promised a "Japan First," went from one to fifteen seats.{#p-1786022972930-81862}
Incidents with tourists are increasing throughout Japan.{#p-1786023588215-84005}
This year would be the first in which tourism might decline (a decrease of 2.8% is expected), but so far not for economic reasons but for political and social ones.{#p-1786022972930-44493}
In November of last year, in a clear nod to Donald Trump, Prime Minister Sanae Takaichi warned the Japanese Parliament that if China resorted to force in its claim over Taiwan, this could trigger a military response from Japan.{#p-1786022972930-24807}
As a result of the trade confrontation with the U.S. and Donald Trump's pressures on the Japanese, Chinese citizens are restricting their travel to the Land of the Rising Sun.{#p-1786028717979-61432}
Xi Jinping was furious. Once the dust of the classic diplomatic skirmishes settled, what remained was Beijing's warning for Chinese citizens not to travel to Japan, citing security concerns - it is true that Chinese tourists are the least welcomed. The warning has been repeated at least 8 times since then - it pops up on all cell phones - and anyone with tickets was refunded 100% if they decided to cancel their flights. With almost a third of total visitors, any decline in Chinese tourists is significant.{#p-1786022972930-13268}
The bond between the U.S. president and the Japanese Prime Minister is close.{#p-1786023731420-15155}
But it is not just this. Tired of the outbursts from foreigners, the Japanese themselves - this is more evident at the local level, from the prefectures rather than nationally - have begun to impose a series of restrictions on those they do not consider welcome.{#p-1786022972930-40370}
In April of last year, an inn in Kyoto began asking Israeli tourists to sign a form declaring that they had not committed war crimes, and a few months later, a hotel in Nagano outright refused to accept Israeli tourists. These are extreme cases, but they indicate that the Japanese are willing to abandon their proverbial kindness.{#p-1786022972930-57577}
Local governments are leading the campaign to minimize the inconveniences caused by tourists to Japanese citizens.{#p-1786024074845-43868}
On an official level, a series of campaigns have been launched to raise awareness among tourists, and officials have appeared on the streets warning them about their bad manners, such as eating while walking, using cell phones on public transport, blocking streets, etc.{#p-1786022972930-91945}
A series of festivals have been canceled or reduced due to the misbehavior of tourists, their "filthiness," and disrespect for private property (for instance, the Sakura festival in Fujiyoshida, which attracts around 200,000 visitors); tourists are being monitored with cameras to prevent crowding and redirect their traffic; in some places (Mount Fuji, the bridges of Tokyo), barriers or fences are being erected to block the accumulation of tourists seeking to take photos; the number of attractions requiring advance reservations is increasing; etc.
In response to protests from its own citizens, the Japanese government is focused on an education and awareness campaign for foreign tourists.
All this is "uncomfortable," but it doesn't hurt. When it comes to finances, many points of interest, castles, museums, transportation, etc., have started to apply a differential fee to tourists that did not exist before (in the case of Himeji Castle, 150% more; access to Mount Fuji has quadrupled and is limited to 4,000 people per day, etc.). Kyoto and other cities have increased taxes on luxury hotels; taking photos on streets or of private homes may lead to up to 30 days in jail, and taking a photo of a Maiko (Geisha) without her permission may result in police intervention; the "departure tax" has tripled to 3,000 yen (USD 19), and more significantly, the VAT refund that previously took the form of an immediate discount (10% on purchases over 5,000 yen) will now have to be done at the airport starting in November (remember that products cannot be used within Japan and must be in a sealed bag), with the money credited to a credit card or virtual wallet.
By 2023, the displeasure of Kyoto residents with tourists was subtle but palpable to the attentive eye.
Despite the fact that it is no longer so easy and that the situation may not improve, for a thousand reasons Japan will continue to be a destination worth visiting (personally, I will likely stay a few days next year).
Of course, the headline of this note, "do it now" is not because of this, but because of what is possibly the most important factor for what is merely an aspiration to become a reality: the value of the yen, or rather, the low value of the yen.
On May 11, Scott Bessent met in Tokyo with the local "Toto," Satsuki Katayama, seeking to convince her to abandon her policy of selling U.S. bonds to prop up the yen and control inflation.
It was not the only mechanism, but what the Japanese were doing was buying yen and Japanese bonds, whose rate had reached its highest since the early days of 1997 (2.59%, with the yen at 157.86 per dollar); the market rumor was that in the previous weeks, the equivalent of $63.5 billion had been allocated, and a significant portion of this had corresponded to "treasuries".
Scott Bessent and Satsuki Katayama, the financial leaders of the U.S. and Japan. The American prevailed, but the strategy ultimately failed.
Why were they looking to support the yen? Basically because Japan depends on energy and food imports, so the depreciation of its currency translates into an increase in prices for companies and consumers, which, although it may not sit well with libertarians, we call higher inflation.
Several factors are at play here. On one hand, there are structural issues within the Japanese economy itself. The Prime Minister's economic plan is seen as inflationary, and with public debt exceeding 200% of GDP, in an economy that is not growing and an aging population, the debt is only expected to continue rising.

At its core, "Carry Trade" operations are very simple... but their consequences are not.
We can add that, given the interest rate differential, in the last five years globally, the favorite "Carry Trade" has been to borrow in Japanese currency to invest in stronger ones (Brazilian Real, Colombian Peso, Turkish Lira... Do you remember what we said earlier about Mexican tourists being the highest per capita spenders in Japan?, which depresses the yen.
During this time, the Bank of Japan (BoJ) has been repurchasing yen, trying to support the currency, but beyond some momentary success, they have not been able to stop the deterioration.
History shows that the Bank of Japan's interventions to support the yen have only had temporary successes.
Finally, we have the rise in commodities, particularly oil, as a result of the war between the U.S. and Iran.
The actions of the Japanese are concerning to the Americans. May's visit was the third for "Uncle Scott" to Tokyo in nearly twelve months, and everyone remembered the altercation he had recently with Satsuki san during the Davos Forum, without evidently managing to convince her (the Japanese were/are caught between an excessive rate hike translating into prices and an insufficient one continuing to depress the currency).
The risk is that since 2019, Japan has been the largest external holder of U.S. debt (12% of that total or bonds worth $1.143 trillion; China holds 7%) and when it sells, it puts upward pressure on U.S. interest rates, which Donald Trump does not like or find convenient, especially in an election year.{#p-1786023022996-93561}
Japan is by far the largest holder of U.S. government bonds. Today, this is a weapon that punishes internally, as Americans do not want them to sell.{#p-1786025268767-48378}
What Bessent proposed was that, instead of resorting to selling U.S. debt, the Bank of Japan (BoJ) should simply raise its reference rate, which in theory would stop and even reverse the flow of international funds.{#p-1786023022996-55814}
A little over a month later, on June 16/17, the BoJ raised the uncollateralized "call rate" from 0.75% to 1%, the highest since September 1995, the highest in 31 years (the only BOJ governor who voted in dissent wanted a rate of 1.258%).{#p-1786023022996-89702}
The reluctance of the Japanese was justified; on one hand, the increase in the cost of money hit Japanese consumers - not to mention that it increases the weight of state doubt - and on the other hand, the increase from December 19/22 from 0.5% to 0.75% clearly had not yielded the expected results (the bond rate at 2.02%, the yen at 157.86 per dollar). The previous increase had been in July 2024 when it went from 0-0.1% to 0.25%.{#p-1786023022996-8667}
During the last five years, successive Japanese governments have failed to prevent the rise in the cost of money, the depreciation of the yen, or the increase in inflation (nominal CPI), in a Japan where - although not manifested - social discontent is growing.{#p-1786025859027-84928}
What clearly also did not succeed was that decision. On the 23rd of last month, the yen had plummeted to 163.86 per dollar, a low since October 1985, and the rate on 10-year bonds climbed on July 9 to 2.879%, the highest since September 1996.{#p-1786023022996-61067}
The first sign of what was to come was at nine-thirty in the morning on Friday when it was revealed that the U.S. Treasury had notified its "friendly" banks that it was about to intervene in the yen market.{#p-1786023063472-91356}
At 11:33 during the US cabinet meeting at Camp David, Bessent "leaked" a note that read "To do; Buy Japanese Yen (JPY); $5-10 billion" (no one believes someone like him needed such a reminder, which was on the table throughout the meeting).
In a nearly "cheap" maneuver, Scott Bessent hinted to the market in every possible way his intention to intervene in the Yen. Whether it was to boost or curb the rise is what remains in doubt.
Shortly after, the Financial Times reported that by order of the Treasury, the New York Fed was buying yen against euros through the ESF (Exchange Stabilization Fund, from the Treasury), while in parallel, the BoJ was repurchasing its own currency for the second consecutive day (it is unclear if the FIMA, "Foreign and International Monetary Authorities Repo Facility," was involved).
Here we had two unusual things: that it was announced in advance, eliminating the weight of the surprise factor, and that the European currency was used instead of dollars, which, while supporting the dollar, is much less effective.
Remember that the line of credit from the ESF that was opened for Argentina last October was for $20 billion - plus a potential loan from private actors for another $20 billion - of which the country only took about $2.5 billion, which was fully repaid in January of this year. So the $5-10 billion that the treasury allocated to support the yen "is nothing."
Its value comes from another side. If we set aside the 2011 operation where, for humanitarian reasons, the G7 countries acted in a coordinated manner to support the Japanese currency after the earthquake and nuclear disaster in Fukushima, this was the first time in 48 years that the US Treasury intervened seeking to support the Japanese currency.
The first intervention made by the BOJ last week was successful (it was the 42nd largest daily increase of the currency in at least 34 years), but it sent chills down the spines of those who had open Carry Trade positions.
The estimate is that on Thursday, when the yen surged 2.36% against the dollar, the BoJ had already intervened with the equivalent of $52.8 billion (a historical record), while on Friday, when the improvement was much more limited, at 1.23%, it did so with between $32-37 billion. We can add what the Treasury did, bringing the total to the astronomical range of $90-$100 billion. The result? A 3.69% improvement in the Japanese currency in two days (the last time we saw something similar was on November 11, 5.2%, and December 20, 2022, 3.7%).
On Sunday, in a maneuver of pincers, the US government confirmed the intervention: on one hand, the Secretary of the Treasury tweeted, leaving the door open for an even more significant intervention appealing to FIMA. Scott Bessent confirms the US intervention and his willingness to expand FIMA resources so that Japan is not forced to sell US securities.
Japanese treasuries are deposited at the New York Fed, allowing the use of FIMA (this mechanism of one-week loans against their own holdings, we know from when last year the Americans came to the rescue of the Argentine peso), but here there is a total limit of up to $60 billion. What Bessent aims to do is to expand that limit to effectively make the Fed the global provider of last-resort liquidity. For now, the Japanese have already confirmed that they will appeal to this REPO system (so they do not sell the treasuries).
On the other hand, we had a sardonic Donald Trump once again minimizing what he considers important, stating from Air Force One: "Japan has been very good to us, with the exception, of course, of Pearl Harbor," "They wanted a little help and we are always there for Japan," "More than anything, it has been a demonstration of friendship." From the presidential plane, Donald Trump tried to downplay the Treasury's involvement in the yen stabilization maneuver. He had no qualms about reminding the Japanese of the attack on Pearl Harbor—was it to humiliate them?—but curiously "forgot" to mention the bombs on Hiroshima and Nagasaki.
Looking back, one might think that more than supporting the actions of the BoJ, what the Americans did was try to mitigate its effect... that the rise of the yen would not be so abrupt.
Scott Bessent is not an economist, let alone an academic; he is a trader. Just as Donald Trump often seems to run the U.S. government as if it were one of his business ventures, we see Bessent using American economic institutions as if they were some of the funds he used to manage.
When he decided to assist Argentina, it was not for financial or economic reasons—there was no risk of contagion—but political ones. Argentina paid what it had to pay, and the bulk of the cost fell on American "farmers" (we'll see if they are charged for it in the November election). The beneficiaries: Trump, Milei/Caputo, and the operators who had positioned themselves by acquiring Argentine bonds.
The reality is that it is very difficult to determine how much money is committed to "carry trade" operations involving the yen, as most are private contracts, far from the public eye.
Estimates range from $250 billion (considering only BIS data), $1.1 trillion (according to TSLombart), $4 trillion (if we take into account the institutional money of Japanese companies placed abroad) to $20 trillion (Deutsche Bank and others). Regardless, it is an immense amount, even if we stick with the most conservative figure of $1 trillion, which involves both foreign and Japanese investors.
Any intervention made on the yen must then be measured, because if it is "too successful," it could force those who "owe in yen" to abruptly sell their "Western" holdings to close open positions, generating consequences that are very difficult to foresee (we saw this on August 5, 2024, after the BoJ raised its rate to 0.25% and the Nikkei plummeted 12.4%).
The numbers and actions taken these days are "brutal," but the feeling is that we are talking about just a "band-aid." For now, the yield on 30-year U.S. treasuries climbed last Friday to 5.28% annually, the highest since June 2004, and the yield on 10-year bonds to 4.74%, the highest since January of last year.
It is true that there were other factors behind it (the Fed's decision not to change its rates, oil prices, inflation fears, etc.), but even though things have calmed down a bit these days, it is clear that the intervention did not help support U.S. debt.{#p-1786023171279-36035}
Last week's maneuver had a relative success. The yen is still below (undervalued) the value it had when Bessent traveled to Japan in May, and the trend this week is again downward, reflecting that beyond the specific actions taken, the expected change in expectations has not yet occurred.{#p-1786054239410-97850}
A Reuters survey of 60 market players taken between the 31st and the 5th of this month says that 95% of them are skeptical about the success of last week's measures. For there to be a change, fundamental actions are required, such as a real and significant increase in the BoJ's rate, which neither the Japanese nor the U.S. governments seem willing to take, at least until the elections in November. Of course, we could be wrong...{#p-1786023171279-9604}
The market does not trust that this year the strategies to support the yen will be successful.{#p-1786027253270-47760}
Where does this leave those who want and can visit Japan? Perhaps the joint intervention will succeed, perhaps not. Perhaps -very likely- in a few weeks we will see some other action, but for now, the most it has done is increase the cost of the trip by 4%. In any case, just in case, don't delay it, as Japan is worth it.
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