At a recent Singapore retail convention, an Australian financier recounted how his wife spent her time on a trip to Tokyo. Speaking privately on the sidelines of the event, he revealed that she didn’t spend a single minute sightseeing in the city because she was laser-focused on buying a haul of luxury goods. By taking advantage of highly favourable exchange rates, she found that it was cheaper to purchase a plane ticket from Melbourne to Tokyo and buy the items from major French houses in Japan than it was to shop at the brands’ Australian boutiques.

With the Japanese yen continuing to plummet against major currencies — last week it dropped to its lowest level since 1986 against the US dollar — shopping sprees like this have become increasingly common. Wealthy and aspirational consumers from around the world have been flocking to the Japanese capital as the yen hit multi-year lows against the euro, the Australian dollar and the Chinese yuan.

“Top luxury brands, especially in the Ginza district [of Tokyo] and department store shop-in-shops, are performing exceptionally well,” said Maiko Shibata, head buyer and creative director at Japanese multi-brand boutique Restir, which sells an edit of products from both big brands like Balenciaga, Valentino and Burberry and niche names including Marine Serre, Sacai and Maison Mihara Yasuhiro.

“There’s a trend among wealthy shoppers, [both tourists and locals], to spend money on very rare, hard-to-get products, or limited-edition items such as Hermès and The Row Margaux [bags]. We even have a word [in Japanese to describe them] called ‘her-pat,’ [a codename for those who shop enthusiastically as if they’re on ‘Hermès patrol’ and] post their trophy items on social media,” she added.

The boom is motivating luxury brands like Hermès, Tiffany & Co and Balenciaga to boost their operations in the country, expand their retail footprint or accelerate existing expansion plans. Hermès, which posted a 25 percent sales jump in Japan for the first quarter, opened its second location in Ginza last month at the Mitsukoshi department store, following its Azabudai Hills store launch in February. In April, Balenciaga opened a three-level flagship store in Ginza, bringing its Japanese store count to 37.

There has also been an influx of emerging jewellery and accessible luxury brands into the country, with Gemmyo, Ganni, Studio Nicholson and Polene entering or opening their first stores in the last year.

“[Other] luxury brands are investing more in their presence in Japan by modernising stores and enhancing their digital infrastructure,” said Federica Levato, senior partner and a regional leader of fashion and luxury at consultancy Bain & Company. “[In addition to] personalised customer experiences and exclusive events to engage wealthy local clients, [they] are also revamping interest in exclusive partnerships with local craftsmanship and creativity to increase cultural relevance.”

Some of the industry’s biggest players have been duly rewarded. French luxury conglomerate LVMH reported a 32 percent sales surge in Japan in the first quarter, the highest growth rate among regions. Kering posted revenue Q1 growth of 16 percent and Prada Group’s retail sales in the country were up 46 percent, which the company said was “sustained by local consumption and increasingly by tourists”. Meanwhile, Richemont saw sales surge 20 percent at constant exchange rates in Japan in the year ended March.

Factors driving the sales boom

In stark contrast to the slowdown in the Chinese market, Japan’s luxury sector has been experiencing a substantial and sustained increase in sales since last year driven in part by international tourists — including Chinese and many other nationalities.

“Luxury retailers in Japan have undergone a period of strong acceleration in 2023 and [have remained] on a positive trajectory over the first months of 2024,” said Levato. “The market has seen robust growth, driven by solid demand on behalf of locals and an increase of tourist inflows, partially attracted by the weak local currency.”

The Bain analyst said the value of the Japanese luxury market was at 29 billion euros ($31 billion) last year, up 27 percent year-on-year at constant exchange rates.

According to the Japan Department Stores Association, duty-free sales by visiting foreign nationals marked a record high for the third consecutive month in May, more than tripling year on year to 71.8 billion yen ($450.7 million), driven by the surge in international tourists purchasing luxury goods. It marked the 27th consecutive month of overall sales growth across department stores.

Department store giant Takashimaya confirmed in its 2024 financial statement that “inbound net sales were favourable on luxury brands and other high-ticket items as sales were propelled by an increase in per-customer sales due to yen depreciation.”

The luxury department store chain, which has branches offering tax refund counters in Greater Tokyo and Osaka and in at least one branch in Kyoto, Nagoya, Okayama, Gifu and other cities around the country, is popular among international tourists, many of whom travel to Japan for a combination of sightseeing and shopping.

“Once lagging in innovation, [Japanese] department stores have now become better at capturing new trends and consumer desires, although this remains an area needing further improvement to attract younger customers,” said Levato.

An example of this is Seibu & Sogo Co which is reconfiguring its Seibu Ikebukuro main store in Tokyo under a theme it dubbed “inclusion” which will move away from the traditional segregation of men’s and women’s sections and welcome all customers in “unifying spaces where friends, couples, and families can shop and enjoy time together.”

How reliant is Japan on Chinese shoppers?

Japan recorded more than 3 million visitors for a third straight month in May, according to the Japan National Tourism Organisation (JNTO). Arrivals during the month were up 60 percent year on year and 9.6 percent compared to 2019.

The JNTO noted that Chinese travellers accounted for 16 percent of tourists and 20 percent of overall tourism spending in the first quarter of the year, which is still about 30 percent lower than pre-pandemic levels.

However, overall spending on products that tourists typically claim tax refunds — such as luxury goods — are up on pre-pandemic levels, according to data from a report by Global Blue. Despite fewer trips in 2023 compared to 2019, the average amount of tax-free spending by Chinese visitors in Japan was more than double that of 2019, marking a 117 percent increase.

“Mainland Chinese tourists and currency depreciation are key levers. However, there is also strong inbound tourism from South Korea, the US and Hong Kong SAR,” Daniel Zipser, McKinsey & Company’s senior partner and leader of the consultancy’s consumer and retail work in Asia. “Japan has taken the lead as the top destination for South Korean travellers due to the favourable exchange rate.”

According to JNTO, South Korea had the highest number of foreign visitors to Japan in April at 661,200, followed by China at 533,600, and Taiwan at 459,700. Both Hong Kong- and Taiwan-based consumers have been travelling and spending abroad enthusiastically as markets such as Japan and Europe offer retail prices on luxury goods that are significantly cheaper after currency exchanges and tax rebates, according to the latest annual report by Dickson Concepts.

“The local market is also growing,” said Zipser, citing research by NRI showing that “the total number of wealthy and ultra-wealthy [Japanese] households in 2021 increased by 158,000 households from 1.327 million households in 2019, the highest number since the estimate began in 2005.”

EY’s Asia-Pacific strategy execution leader Nobuko Kobayashi said that “while [foreign] visitors account for one-third of sales in major luxury brands [in Japan] according to the FT, Japanese locals show resilience in supporting the post-Covid luxury market in the country, particularly since [outbound] overseas travel appetite wanes in the face of yen depreciation,” citing figures from Morgan Stanley’s luxury analyst Edouard Aubin in the Financial Times.

Levato echoes that sentiment. “Domestic spending on luxury goods in Japan remains sound, particularly among wealthier Gen X consumers less impacted by general macroeconomic pressures,” she said. “Yet, aspirational customers started to resent inflationary pressures more recently, and brands are still facing harder times in capturing a younger customer base.”

Shibata suggests that recent price hikes by European luxury brands have disproportionately impacted the Japan market in the current economic cycle of a weak yen, leading to an increase in sales revenue for some retailers, despite a slight decrease in the number of units sold.

“Prior to Covid-19, or when exchange rates were more favourable [to Japanese customers], they readily spent money on new and emerging brands. Now, with the weak yen, [locals] think carefully before shopping and only buy if they believe they won’t regret it,” said Shibata.

Another reason for caution among some locals is that they “may be tired of the rapid fashion cycle and obvious marketing,” she conceded. “They [hesitate to purchase because they] simply want to make the right decision.”

How long will the boom last?

Hirofumi Suzuki, chief foreign exchange strategist at Sumitomo Mitsui Banking, recently told The Japan Times that if there are no major changes in monetary policy, the yen will continue to weaken. But the near-term course the Japanese government will take with fiscal policy remains shrouded in conjecture at the time of writing.

Finance minister Shunichi Suzuki commented on July 2 that currency moves were being watched vigilantly, but analysts speaking to Reuters observed an absence of any usual reference to the government being “ready to act” to support the yen’s recovery.

Levato said that while the recent boom driven by the weak yen and tourism may normalise, positive signals from the local customer base suggest that the market is well-positioned for future growth.

“The key for brands to continue growing will be increasing relevance toward local consumers, capturing younger generations and innovating to respond to changing consumer trends and market dynamics [such as]... weakening macroeconomics...impacting confidence in recent months, with consequences hitting the aspirational segment.”