MUFG has commented on the potential ramifications for the Japanese Yen (JPY) following China's announcement that it is easing restrictions on group travel to 78 countries.

Key Points:

• China's Easing of Travel Restrictions: China recently revealed that it would be lifting restrictions on group travel to 78 countries, effective immediately. This is expected to lead to a significant resurgence in Chinese tourism abroad.

• Beneficiary Countries: Among the countries set to benefit from this decision are Japan, South Korea, Australia, Germany, the UK, and the US. These nations saw an immediate reaction in their tourism-linked stocks, especially airlines, which performed significantly well in markets that previously benefited from Chinese tourism.

• Japan to Benefit Notably: China's tourists have always had a preference for Japan as a travel destination. Given the easing of restrictions, Japan is anticipated to see a significant boost in tourism inflow from China in the coming times.

• Supportive Flow Data for Yen: The recent data indicates a shift that favors the JPY. While this alone isn't enough to predict a reversal in JPY's direction, it's a step in the right direction.

• A Potential Turn in JPY Depreciation: If evidence emerges of a US slowdown and market expectations adjust regarding Federal Reserve policy, the yen's depreciation trend could reverse. In such a scenario, the balance of payments data would validate and bolster the JPY's strength.

Summary:

MUFG believes that the recent easing of travel restrictions by China can be beneficial for the JPY. While Japan is set to be a primary beneficiary due to its popularity among Chinese tourists, the positive shift in the flow data for the yen is indicative of potential future strength. Once there are more evident signs of a US economic deceleration and changes in market expectations regarding Fed policy, there could be a reversal in the JPY's depreciation trend. When this unfolds, the balance of payments data will further support this bullish move for the JPY.