Japanese Current Economics And The Impact Of Earthquake Economics Essay

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The UNWTO (2012) has reported that the total foreign visitors in 2011 was 983 million, worldwide, International tourist arrivals grew by 4.6% in 2011 to 983 million, up from 940 million in 2010 when arrivals increased by 6.4%. It is obvious that the tourism market has still huge potential. For Japan promoting more international arrivals is significantly important in order to distinguish Japan as a tourism nation.

In 2010 June, the Japanese government announced a new strategy for creation of demand and employment. This indive the removal of day off and easing of restriction on visa for Chinese. In the same way, in order to grow tourism industry and promote inbound and outbound visitors, the Japan Tourism Agency, an extra-ministerial bureau of the Ministry of Land, Infrastructure, Transport and Tourism of Japan made a plan which is called "Japan Tourism Agency Action Plan". The aim of the plan is to grow the visitors into 15 million by 2013 as first step, as second step, 20 million by 2016, the aim of third step of the plan is 25 million by 2019, reaching 30 million visitors is their ultimate goal. It is estimated that new 560 thousand employment will be made in 2019 by achievement of the plan, but only 8.61 million visitors was counted, the aim of 2010 were not achieved. In the same way, they promote outbound tourism, and aimed to 10 million by 2010. However, the number of outbound has stayed stable, in 2011 it was 16.99 million.

According to the national census in 2010, the overall population of Japan was 128,060,000. Although it became 15.3% and the high rate of increase from 1945 to 1950 by what is called primary baby boom, after that, increase width contracted with decline in a birth-rate, and it became 4.7% from 1950 to 1955. Then, by the secondary baby boom, although 7.0% rate of increase were expanded from 1970 to 1975, it changed to reducing again with 4.6% from 1980 years to 1985, was stabilizing from 2005 to 2010, and has become the minimum population growth rate since an investigation start. Looking at the population by gender the percentages are 48.790 male and 51.390 female. If the overall population is divided into 3 age group, under 15 years old is 16.803 million (13.2%), between 15 and 64 is 81.03 million (63.8%), and over 65 years old was 29.24 million (23.0%).

The National Institute of Population and Social Security Research (JPSS) (2012) predicted that the total population will be in the process of decrease for long time based on the national census, by 2030, total population will be 116.62 million, 99.13 million by 2048, and will be 86.74 million by 2060. In the view of macroeconomics, rapid population decrease and aging affect economic development through decline of workforce widely and seriously. Concretely, Japan Business Federation (2008) explained that in Japan, chiefly following 3 kinds of effect will happen:

Effect of Economic growth

Diminish of workforce

Slowing down of the capital stock by decline of household saving

Shrunken domestic demand for consumption and investment

Loss of sustainability of finance and pension system

Weaken of economic system

Such as medical treatment, care, education, and peace and order

However, Mak et al (2005) said that there are three potential consequences for the rapid aging of its population on future Japanese travel abroad, following:

Fewer people in the future might mean a smaller population pool from which to draw overseas traveller

Since many young of working age is predicted to decrease and seniors is expected to rise dramatically, as a result, labour power will shrink and economic growth become slow.

The propensity of international travelling tends to decline with age.

Sakai et al (2000) found that age and cohort membership are significant determinants of demand for Japanese international travel, they demonstrated that there are significant differences. In the pattern of travel propensities between male and female. According to them, taking separate vacation is quite common for married couples, travel propensity reaches its peak for people in their 20's and then falls dramatically among female. Until their late 40's, this propensities keep falling at around 10%. While, male are fewer than female to travel before age 30. It is same for both male and female groups that travel propensities decline quickly from age 60 onward. Among more recent birth cohorts, travel propensities are higher, they found.

Britain is also the country which has the problem of reduction of population and the aging society like Japan. A UN report says that whose massive population reaches unsustainable level, the growth rate of world population must slow down significantly. The current world population is almost 7 billion, by 2100, the world population will reach 14 billion if no action is taken (Ebden, 2011).

It is predicted that by 2020, the number of people over the age of 60 will reach 1 billion, and almost 2 billion by 2050, representing 22 % of the world whole population, and it is likewise predicted the proportion of individuals aged 80 or over rise to 4 % from 1% by 2050 (Bloom et al, 2011).

Anyway, it is inevitable that an aging society will becomes still more serious, it is necessary to expand the leisure space where people can pass every day for useful purpose, and to aim at the flexible correspondence. Nakasaki (2003) emphasise that for many senior people, travelling and sightseeing constitute a part of life, so the reservation and maintenance of the place that can enjoy such happiness, and in order to support it, serving accommodation, tourism, and information continually are required from now on.

Japanese current economics and the impact of earthquake

The growth of the economy in Japan was mainly supported by developing industrial structure and increasing exports, real estate and stock prices were greatly inflated. In order to force the US to devalue its currency because of a current account deficit, the Plaza Accord was agreed in 1985; after that Japanese economy experienced a rapid strong yen the second half of the 1980s. Although the circle dollar rate at the beginning of the year in 1985 was 252.5 yen per dollar, the beginning of the year in 1988 came to 121 yen per dollar. As a result, a craze for speculation was accelerated, especially many people got absorbed for stock and land speculation, since dealing for the purpose of resale increased, and land prices rose dramatically. On the other hand, because the purchase of a residence becomes difficult under the influence of soaring land prices, this problem interfered with citizen's life. The government looked at the situation very seriously, they raised the official bank rate 5.5%, after that 6.0% twice in order to strengthen tightening of finance in 1990. Therefore the price of land plummeted. Japan's economy had a recession, and many Japanese hotels went bankrupt. A few international brands entered into Japanese hotel industry.

Since 2000, many international brand hotels have entered into the Tokyo market. These include Four Seasons, Hyatt, Conrad, Mandarin, Ritz-Carlton, and Shangri-La Hotels and Resorts. This advance of the hotels were characterised by adopting lease style but not management contract style and focusing on Tokyo. As a result, although traditional famous and high grade Japanese brands somehow survived, many middle class hotels were forced to close down.

Moreover, on September 15, 2008, Lehman Brothers, one of the most famous financial service firms, filed for Chapter 11 bankruptcy protection. It was the largest bankruptcy filing in U.S. history, with Lehman holding over $600 billion in assets. After bankruptcy of Lehman Brothers, especially the influence of a global credit crunch was aggravated in the Europe newly rising nation. The first signs of economic problems in Europe were in Iceland. The country was forced to make major changes to its fiscal affairs. Also Eastern European countries such as Ukraine, Hungary, Belarus, Bulgaria, Romania, and Serbia need to request the International Monetary Fund (IMF) to provide support.

In case of Japan, the economy got worse quickly. Considering rapid decrease of export as the main factor, it also affected the employment situation. The unemployment rate reached to 5.6%. Since depression of an export counterpart's domestic demand, concentration of influence for a car and IT products, and a strong yen overlapped, the reduction in GDP became the maximum all over major industrialized countries. As a result of foreign demand's falling off, the current balance of Japan decreased and it deficit-ized the goods and services balance.

A year after the bankruptcy, the Japanese economic slightly recovered from the tremendous damage, the terrible natural disaster attacked north Japan, and the economy declined again as if it is laughing at their recovery.

"The 2011 earthquake off the Pacific coast of Tōhoku " (focus: the Sanriku coast, depth:24 km (estimate), scale: magnitude 9.0 (an estimate, the largest ever domestic observation) on the Richter scale) occurred on March 11, 2011.

A large-scale tsunami swept away the whole north area of Japan focusing on the Pacific coast part of the Tohoku district, and it brought about the unprecedented damage which exceeds the "Great Hanshin earthquake" which happened in 1993. The tsunami which was generated by the earthquake, Fukushima I and II Nuclear Power Plant were heavily damaged, and the radius of 20 kilometres of the plants was designated as evacuation zone by the government. According to the latest report from National Police Agancy in July (2012), the total dead body was 15,867, missing was 2,906 and injured was 6,109.

Risk Management Solutions (RMS) (2011) reported that the estimated total economic loss resulting from the earthquake and tsunami, and as well as from the impact of the disruptions in power supplies in Fukushima known as "The Fukushima Daiichi nuclear disaster" was up to 300 billion USD (approximately 18.95 billion pound).

Needless to say, the earthquake affected the tourism industry as well. The institutions of about 1/4 including eight institutions which covered large-scale damage among a registered hotel 285 facilities of northeast 6 prefectures were that their business was significantly interrupted. Many registered hotels were obliged to restrict business as a result of the destruction caused. After the earthquake, Japan's economy dipped for the time being, 61% of booking for accommodation in Tohoku region in which the earthquake happened and 48% in Kanto region including Tokyo was cancelled in March and April. Moreover, by the earthquake, fear of spreading radiation and strong yen rate, the restoration of inbound arrivals is slow. These facts show the impact of these effects on the tourism industry.

Types of Japanese hotels

Japanese lodging facilities are classifies into five main categories by The Japan National Tourist organisation: standard hotels, ryokans, minshuku, youth hostels, and guest houses (Smith, 2008), hotels and ryokans are especially major for Japanese travellers.

Ryokans have small room counts and obtain internationally good reputation because of quality of service and Japanese. Group tourists such as school trip and study tour frequently make a reservation for this type of accommodation rather than individual travellers. Ryokans offer traditional Japanese furnishings: futons (Japanese beddings), zabutons (floor cushions), and shoji (paper sliding door) (Smith, 2008), a hot spring bath is also one of the attractive equipment with which ryokans are equipped, recently these traditional furnishing is getting more popular for foreign tourists than Japanese people, thus it is prior subjects to make employees learn English conversation for entire accommodation industry (Iwai, 2011). The concept of minshuku is similar to ryokan's, but minshuku is more economical than ryokan, simply equivalent to a European boarding house or a bed and breakfast.

In the UK, the level of hotel and guest house is divided into 5 grades stars by Automobile Association. This classification is easy for guests to understand. On the contrary, Japanese hotels do not have a graded system by stars, but hotels are classified vaguely by Japanese society. Normally 3 types are following:

City hotel : located in big cities, contains restaurant, banquet, wedding space, shopping centre, and conference space, the name of city hotel is an English word coined in Japan, this type hotel can be applied to between 3 to 5 stars hotel in international classification.

Resort hotel : Domestic resort type hotel equipped with banquet and wedding space for local market differently from European hotel. Besides, these structures are often furnished half in Japanese style and half in European style. Prices are more expensive than other types.

Business hotel : this is also Japlish, generally, this type is for business trip, in international classification, this type can be applied to budget, economy, and mid-market hotel.

 

Total

Japanese style (Ryokan)

Resort hotel

Business hotel

City hotel

Total

52.2%

36.0%

49.2%

61.6%

70.3%

Tokyo

72.4%

38.2%

60.2%

76.1%

78.4%

Osaka

68.9%

28.8%

69.3%

68.1%

78.3%

From : White Paper on Tourism (2011)

From this table the room occupancy rate in Japan, as can be seen, the total room occupancy rate in 2010 was only 52.2%. Even the capital, Tokyo got 72.4%

 

2005

2006

2007

2008

2009

2010

2011

London

73.74%

80.30%

80.71%

79.37%

80.40%

82.10%

83.91%

Provinces

70.66%

71.19%

71.20%

68.47%

64.83%

67.15%

67.31%

UK

71.55%

73.74%

73.79%

71.38%

68.90%

71.04%

71.61%

From : UK hotels forecast 2011 and 2012

Compared with UK's hotel industry, total occupancy rate in 2011 is 71.61%, in London it was 83.91%, over 10% difference between London and Tokyo.

Tokyo Metropolitan Government Bureau of Industrial and Labour Affairs (2011) reported that although 60% of hotels deal with visitors from foreign countries, whereas, the percentage of ryokans which can deal with foreign visitors by their language was little over 40%.

Although the number of hotels was 5,374 and the number of rooms was 397,346 rooms in 1990, it increased to 9,603 houses and 780,505 rooms in 2008, respectively. On the other hand, ryokans decreased sharply to 50,846 houses and 807,697 rooms in 2008 from 75,952 and 1,014,765 rooms in 1990.

One of reason why the number of ryokan decreased is that the demand for domestic tourism is downsizing. In 2004, the Internal tourism consumption was 29.7 billion yen (241.7 million £), but this number kept decreasing, in 2010, it was 23.8 billion yen (193.7 million £). Besides, since the inbound also soared to 8.61 million in 2010 from 4.76 million in 2000. Many foreign arrivals are used to European style hotels but not ryokan which serve Japanese style service and since famous international brand advanced into Japan, it falls into the oversupply of a room; minor hotels without funding ability were driven into bankruptcy.

Therefore, in recent years, the number of hotels and rooms has continued expansion, but an increased part of the number of rooms is almost equal to a decreased part of the number of ryokan rooms. The sum total value of the number of rooms of the hotel and ryokan showed almost no change from the second half of the 1990s.

Since the economic recession and well known international brand hotel's advance into Japan, the new style of budget hotels which target on business trip customers was on the rise.

These types of hotels, called stay specialization category hotel are getting popular in big cities. The features include the following:

In order to realize the cheap accommodation charges around 5000 yen (approximately 40 £), it specializes in businessmen-oriented stay.

Reducing personnel expenses by introducing computer for thoroughness of low-cost operation.

Contracting franchise agreement and Lease Agreement to develop swiftly

Chiefly, this type of hotel is for business people, banquet space and restaurant are unnecessary, but a breakfast, bread and coffee are served.

In order to materialize a stay specialization type hotel, low-cost construction, low-cost operation, and a high operating ratio are needed. If initial investment is high, even if it performs low-cost operation and a high operating ratio, it cannot but become the business deployment which undertakes a large amount of depreciation burden. On the other hand, if it succeeds in making initial investment reduction by implementation of low-cost construction, the probability of a business success can say that it becomes high.

Across Europe, budget hotel brands have shown the fastest-growing market in the accommodation sector. There are six factors that is driving the growth of branded hotels, following;

Economic changes : Due to rapid economic growth, large industry and agricultural production turned into service industry, as a result, people became to wish to look for good service and quality hotel with their limited budgets.

Growth in GDP : This element promote people to buy products and travel, therefore, the demand for good quality accommodation increased gradually.

Hotel branding : With international and domestic brands, mid- and up-scale markets are well branded , especially in France and the USA.

Internal transport systems : The level and quality of internal transportation system are vital element which contribute to the budget hotel sector, if these are insufficient, people will not wish to travel. The emergence of high-speed trains and intercity cheaper airlines encourage both the business purpose and leisure purpose traveller more easily at reasonable prices.

Unbranded hotel sector : The brand of budget hotel sector was still in underdevelopment, most of the hotel all over the world are budget hotels, but most of them were poorly maintained and security is not enough. And so, building budget hotel bands which are highly reliable, this will provide the budget hotel companies with a substantial opportunity to exploit.

(Harris, 2001)

Nowadays lots of budget hotel brands are being recognised such as Premier Inn and Travelodge. In 2010, these two brands had 41,511 room and 27,010 rooms, they do not have to connect in the mind of the customers. With increasing the demand for travel, cheap accommodation is also required.

The number of times of travel per individual is also decreasing from 3.12 times in 2006 to 2.83 times in 2008. About the sightseeing tour, 47.4% of respondents of college students, 76.6% of family, and 52.1% of member of society in their twenties answered "cannot afford to travel" (Takeuchi 2010).

As one of the big problems of tourism and the hotel industry in long term, there is concern whether the Japanese number of times of a travel and travel expenditure fall and decrease, especially, youth and students

As already the author mentioned above, after 1990 Japan's land price fell down sharply. It became possible to realise investment-return with only benefit of accommodation department excluding restaurant department. Many city hotels changed into stay specialization category hotels. However, this is also the reason why international brands managed to enter into Japanese hotel market, many Japanese brands were forced to go into a critical phase.

Customers choose hotels with cost performance. Luxury hotels such as international brand attract with their brand power and service. On the other hand stay specialization category hotels attract with cheap price by saving management cost. Customers are clearly conscious of the use purpose-oriented amount of a budget. When a customer chooses one hotel from the same class to use purpose-oriented, they evaluate by an offer price. However, the way of attraction within middle class hotels is difficult because they are neither high class nor budget class. The features are scarce in this category of hotel, therefore they lack competitiveness.

Shibata (2006) predicted that in the future the hotel categories will sharply divide into luxury hotels and budget hotels. Therefore, existing the city hotel which is regarded as a middle class hotel will be shrunken, specially, by expansion of providing luxury hotel rooms in the centre of Tokyo which average daily rate is around 30,000 yen, (£250). Customers who use existing hotels which the average daily rate is around 25,000 (£190) yen will move to newly opened more luxury hotels.

Another issue is that since the Japanese hotel industry does not have grading system such as star system in the UK, it is said to be difficult to invite by the power of brand for inbound visitors without price appeal. Besides, the profit structure of city hotel is divided into department of accommodation, banquet, and bar and restaurant, banquet department was supported by domestic demand such as companies and local people and organisation, but long slump of demand make hotels which equip huge banquet room oppressed profit. These hotels need the support of banquet department. Some hotels strive to acquire MICE using existing banquet rooms (Hamada 2012).

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