How a strong yen is affecting Tokyo's hotels

Thanks to the growing strength of the yen, Tokyo hotels are reconsidering the wisdom of raising rates, and are seeking alternatives to keep revenue up. 

Last year, the Imperial Hotel, which dates back to 1890 and has counted Hollywood stars among its guests, brought its room rates back to prices not seen since the early 1990s. With signs of spending from foreign tourists starting to drop as a result of the stronger currency, the hotel is looking to keep guests coming back. “I am worried that if the yen continues to strengthen we may see a brake on visitors coming to Japan,” Hideya Sadayasu, president and general manager of Imperial Hotel Ltd., told Bloomberg, adding that the currency impact was “big” because it can also weigh down domestic share prices which makes consumers tighten their purse strings.

After raising its basic room rates by 10-15 percent last year, the Imperial currently charges an average room rate on par with that of the late 1980s, according to Sadayasu. And for a time, the numbers were steady: The hotel’s profits reportedly rose 2.1 percent to 1.04 billion yen in the first quarter.

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Still, the impact from the 18-percent rise in the yen this year is already being felt in declining spending per tourist and a slowing in the pace of growth in visitors to Japan. The Japan Tourism Agency reported that the average spending per foreign tourist has fallen 9.9 percent to 159,930 yen. Last year, the number of visitors to Japan rose 47 percent to a record 19.7 million. The government is looking to bring 40 million tourists in by 2020, when Tokyo hosts the Summer Olympics—but if a stronger yen means shorter visits or reduced spending, Tokyo’s hotels could struggle in the long run.

Sadayasu said his hotel is looking to keep a 50-50 balance between overseas and domestic visitors to minimize the effects foreign problems might have on business. “The impact of the stronger yen is large,” Kouki Ozawa, an analyst at Mitsubishi UFJ Morgan Stanley Securities in Tokyo, said. “It makes it harder to raise prices and lowers occupancy rates. Guests that might have stayed four nights now stay only for three due to budget constraints, for example.”

After spending 18 billion yen on a major refurbishment in 2010, the Imperial plans to renovate suites to cater for visiting foreign VIPs ahead of the Tokyo Olympics, and to attract wealthy Asian clients.

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