The recent depreciation of the Japanese yen has created a paradox for luxury brands operating in Japan. While the weak yen has spurred an influx of tourists eager to capitalize on cheaper luxury goods, it has also presented significant challenges for maintaining profitability and strategic pricing.
Japan has seen a remarkable surge in tourist spending in 2024, driven in no small part by Chinese shoppers. In 2023, visitors spent 5.3 trillion yen ($35.9 billion) in Japan, surpassing the previous record set in 2019, and the Japan Tourism Agency (JTA) expects this spending to reach 8 trillion yen ($54.4 billion) by the end of this year. This puts Japan well on its way to achieving its goal of 15 trillion yen ($102 billion) in annual tourist spending by 2030.
This year’s boom has been heavily influenced by a weaker yen, which made high-end items cheaper in Japan than in other nearby markets like mainland China. For example, Louis Vuitton’s popular Alma BB Monogram handbag, which sells for 14,800 RMB in mainland China (approximately $2,069), is priced at 279,400 yen in Japan as of August 14, or roughly $1,901. Similarly, the Speedy Bandoulière 30 handbag, priced at 15,200 RMB ($2,124) in mainland China, is priced at 289,300 yen ($1,969) in Japan, a saving of around 7%.
Similarly, Balenciaga’s Le City Mini handbag, currently priced at 14,800 RMB ($2,069) in mainland China, costs 290,400 yen ($1,976) in Japan, an effective discount of 4.5%.
Although the price differences are modest, they highlight the ongoing challenge for luxury brands to maintain consistent pricing across regions amid fluctuating currencies. For Chinese consumers who may have delayed major luxury purchases, the savings at Japanese boutiques can add up quickly.
Luxury groups like LVMH and Kering, and brands like Hermès, have quietly implemented tactical price increases in Japan to account for the weaker yen this year, with Kering Chief Financial Officer Armelle Poulou noting that “most” of their houses have adjusted prices to mitigate the impact of the currency depreciation.
This is also the case for Louis Vuitton, which increased the price of its Speedy Bandoulière 30 in Japan from 280,500 yen ($1,909 at current rates) this spring to its current price of 289,300 yen ($1,969), an increase of around 3%.
Rightfully, brands are hesitant to bite the hand that feeds, even though a weaker yen can attract bargain-seekers who fail to spend in their home country. This summer, Japan was the standout market for virtually every luxury company that reported their Q2 earnings, and for some brands it was the only market that saw positive sales growth.
In the second quarter of the year, Prada and Hermès saw impressive YoY global sales increases of 18% and 13.3%, respectively, with Prada seeing a staggering 65% revenue jump and Hermès sales rising 19.5% in Japan. Even brands facing significant challenges globally have found success in Japan. Ferragamo, for example, posted a 12.8% YoY global sales decline in Q2, yet Japan stood out with 9.8% growth, in stark contrast to the 14.9% drop across the rest of APAC, a 3.2% decline in the US, and a 2.9% decrease in EMEA.
Similarly, luxury group Kering, which posted an 11% YoY sales decline in the first half of the year, said Q2 sales in Japan grew 27%, while Western Europe slumped 8%, North America fell 11%, and the rest of APAC plummeted 25%.
In addition to visitors looking for better deals on everything from electronics to apparel, the weaker yen has also attracted younger Chinese shoppers interested in secondhand and vintage luxury goods. In addition to a favorable exchange rate, Chinese shoppers are drawn to Japan’s secondhand market owing to its sophisticated authentication systems and large selection.
Recent market events underscore the challenges luxury brands face in Japan. On August 5, the Nikkei 225 index suffered its biggest one-day drop ever, losing 4,451 points and closing more than 12% down amid fears of a US economic slowdown and a sharp rise in the yen following the Bank of Japan’s interest rate hike. As of August 14, the exchange rate stands at $1 to 146.97 yen, a strengthening of roughly 9% against the dollar since July 9.
This volatility makes price-setting particularly challenging for brands, especially during the tourism high season when affluent consumers frequently travel internationally. Any further price hikes in Japan — already unpopular among local consumers — could be quickly undermined by additional currency fluctuations, leading to inconsistent pricing and greater customer dissatisfaction. Raising prices might also drive local and visiting shoppers to purchase from brands that do not increase prices.
For luxury brands, the volatility in Japan’s market highlights the need to work harder to entice Chinese consumers back to mainland stores.
According to Jacques Roizen, Managing Director, China Consulting at Digital Luxury Group, “Leading luxury brands have been increasing their focus on deepening engagements with Chinese consumers within China by providing exclusive experiences and access to gated/hard-to-get iconic products that can only be accessed through purchases made in China.”
Despite this, many consumers remain highly enticed by the possibility of a double-digit discount by simply shopping in Japan. As Roizen adds, “This is especially relevant given the historical tendency of Chinese consumers to seek out luxury purchases abroad, with two-thirds of their expenditures taking place outside China prior to the pandemic.”
For brands, it is crucial that consumers ultimately get back to China stores, at risk of wiping out the success seen in Japan this year. As LVMH Chief Financial Officer Jean-Jacques Guiony recently acknowledged, “We are happy with the growth generated in Japan, but it comes at a notable cost from a profit-and-margin perspective.”
Major currency swings, as Guiony pointed out, can create a deflationary situation in China, with consumers delaying purchases until they can buy at Japanese prices or travel to Japan.