April 25, 2019

Golden Week, the Emperor and the Yen

Amid a benign market, Japan's Golden Week starts this weekend.

The series of national holidays in Japan this year is particularly long because of Crown Prince Naruhito's imperial succession, occurring during this period, and adding another day off. With the weekends, this year's Golden Week lasts for 10 consecutive days!

Many manufacturers close their factories, businesses shut down and people take vacations during Golden Week. Anticipating a halt next week, Japanese exporters pro-actively bought the Japanese yen earlier this week, increasing their hedge ratios, which show how exposed an investment is to risk.

Traders recall the flash crash that occurred this past Jan. 3, when the dollar collapsed by 4.5 percent against the yen because of the extremely thin market during the three-day New Year's holiday. With Golden Week's longer duration, exporters didn't want to get hurt again, which perhaps explains why the yen was stronger earlier this week.

Meanwhile, Golden Week itself yields a distinctive economic dynamic. While business comes to a halt, many Japanese people take a holiday. Don't underestimate the impact of this; take a look at the numbers. A record 662,000 Japanese tourists are expected to go abroad, according to Japanese travel agency JTB Corp. Many popular tour packages for Europe and Hawaii were sold out six months ago. If an average Japanese tourist spent $3,000 each for their vacation, that's close to $2 billion worth of yen selling within the next month, significant enough not to ignore! So that calls for the yen to weaken in coming months.

Keep in mind that domestically, everyone else is also vacationing and foreign tourists shy away from visiting Japan when the popular sites are crowded. This paucity of yen buying supports the weakening trend for the currency.

My View: In Japan, this particular Golden Week is not a somber event, but one to welcome a new era with a new emperor. In Japan, the years are numbered by the year of the emperor's reign and Naruhito has chosen his era to be named “Reiwa." The literal translation is “decreeing beautiful harmony" or “ordering peace," a hope for the people to bloom and blossom in this new era. Let's hope the financial markets will also reflect the new era's pledge of peace and harmony.

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