Tokyo's Haneda Airport. [Photo=Yonhap News]
The impact of the super weak yen is shifting from exports to consumption. While the focus was previously on the export competitiveness of South Korea's manufacturing sectors like automobiles and steel, the recent surge in travel and spending in Japan has emerged as a significant factor contributing to the travel deficit and domestic economic pressures.
According to Japanese tourism statistics released on July 1, approximately 4.88 million South Koreans visited Japan from January to May this year. Considering that the total number of South Korean travelers abroad during the same period was about 12.96 million, this means that more than one in three travelers chose Japan.
As the number of travelers to Japan increases, related spending is also rising rapidly. According to the Bank of Korea's economic statistics system, spending on travel to Japan skyrocketed from $731.1 million in 2021 to $1.96 billion in 2022, $6.09 billion in 2023, $7.28 billion in 2024, and $8.44 billion in 2025, marking a tenfold increase over five years.
South Korea's travel deficit with Japan is also expanding quickly. Last year, the travel deficit reached $5.7 billion, the highest since the relevant statistics began in 1998. This increase is attributed to a rise in travelers to Japan and a corresponding increase in local spending on flights, accommodations, and shopping, indicating a shift in domestic consumption towards Japan.
The surge in travel demand to Japan has been influenced by the prolonged weakness of the yen. While major countries have significantly raised interest rates following the COVID-19 pandemic, Japan has maintained its ultra-low interest rate policy. As a result, the yen-dollar exchange rate, which was in the low 100s per dollar in 2021, surpassed 150 yen in 2022 and exceeded 160 yen in 2024. Although it dipped slightly last year, it has remained above 160 yen this year, continuing the historic trend of yen depreciation.
This year, the impact of the Middle East conflict has pushed the won-dollar exchange rate to threaten the 1,600 won mark, increasing the cost burden of overseas travel. However, the weak yen has allowed Japan to maintain relative price competitiveness, attracting more travelers.
Historically, a weak yen has been seen as a key factor undermining the price competitiveness of South Korea's major industries, such as automobiles and steel. However, as South Korea's export structure shifts towards semiconductors and competition between South Korea and Japan in the global market diminishes, the effects of yen depreciation are becoming more pronounced in the consumption and service sectors rather than manufacturing.
The service balance is also facing negative impacts. Spending on flights, accommodations, and shopping abroad contributes to the travel deficit, which offsets some of the current account surplus generated from the trade balance. If the yen's weakness persists, the travel deficit with Japan may not be a temporary phenomenon but could become structural.
Concerns are rising that the prolonged shift of domestic consumption overseas could hinder recovery in the domestic economy. The demand for travel, accommodations, and shopping that could have been spent domestically is now being redirected to Japan's tourism and retail sectors, potentially weakening the recovery effects for South Korea's domestic tourism and retail industries.
Kim Sang-bong, a professor of economics at Hansung University, stated, "The yen and won tend to synchronize in the global foreign exchange market, so the impact of the travel deficit with Japan on the exchange rate is likely to be limited. However, the consumption that should have occurred in South Korea is now taking place in Japan, which could exert pressure on domestic consumption and negatively affect growth rates."
According to Japanese tourism statistics released on July 1, approximately 4.88 million South Koreans visited Japan from January to May this year. Considering that the total number of South Korean travelers abroad during the same period was about 12.96 million, this means that more than one in three travelers chose Japan.
As the number of travelers to Japan increases, related spending is also rising rapidly. According to the Bank of Korea's economic statistics system, spending on travel to Japan skyrocketed from $731.1 million in 2021 to $1.96 billion in 2022, $6.09 billion in 2023, $7.28 billion in 2024, and $8.44 billion in 2025, marking a tenfold increase over five years.
South Korea's travel deficit with Japan is also expanding quickly. Last year, the travel deficit reached $5.7 billion, the highest since the relevant statistics began in 1998. This increase is attributed to a rise in travelers to Japan and a corresponding increase in local spending on flights, accommodations, and shopping, indicating a shift in domestic consumption towards Japan.
The surge in travel demand to Japan has been influenced by the prolonged weakness of the yen. While major countries have significantly raised interest rates following the COVID-19 pandemic, Japan has maintained its ultra-low interest rate policy. As a result, the yen-dollar exchange rate, which was in the low 100s per dollar in 2021, surpassed 150 yen in 2022 and exceeded 160 yen in 2024. Although it dipped slightly last year, it has remained above 160 yen this year, continuing the historic trend of yen depreciation.
This year, the impact of the Middle East conflict has pushed the won-dollar exchange rate to threaten the 1,600 won mark, increasing the cost burden of overseas travel. However, the weak yen has allowed Japan to maintain relative price competitiveness, attracting more travelers.
Historically, a weak yen has been seen as a key factor undermining the price competitiveness of South Korea's major industries, such as automobiles and steel. However, as South Korea's export structure shifts towards semiconductors and competition between South Korea and Japan in the global market diminishes, the effects of yen depreciation are becoming more pronounced in the consumption and service sectors rather than manufacturing.
The service balance is also facing negative impacts. Spending on flights, accommodations, and shopping abroad contributes to the travel deficit, which offsets some of the current account surplus generated from the trade balance. If the yen's weakness persists, the travel deficit with Japan may not be a temporary phenomenon but could become structural.
Concerns are rising that the prolonged shift of domestic consumption overseas could hinder recovery in the domestic economy. The demand for travel, accommodations, and shopping that could have been spent domestically is now being redirected to Japan's tourism and retail sectors, potentially weakening the recovery effects for South Korea's domestic tourism and retail industries.
Kim Sang-bong, a professor of economics at Hansung University, stated, "The yen and won tend to synchronize in the global foreign exchange market, so the impact of the travel deficit with Japan on the exchange rate is likely to be limited. However, the consumption that should have occurred in South Korea is now taking place in Japan, which could exert pressure on domestic consumption and negatively affect growth rates."
* This article has been translated by AI.
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