Watch Economic Observatory / A strong yen depreciation and inflation have led to a boom in luxury watches with high "asset value"

Despite the uncertainty and negative factors, such as the COVID-19 pandemic that has continued for more than two and a half years and the outbreak of the Russian-led war in Ukraine on February 24, 2022, sales of high-priced items such as jewelry and luxury watches are booming. Leading economic journalist Tomoyuki Isoyama analyzes and considers the background to this and the immediate outlook.

Amid a serious yen depreciation and inflation, luxury watches with high "asset value" are booming

　In a previous article, I wrote, "Inflation is finally here. Will the prospect of rising prices lead to a rush to buy luxury watches?" Japan's consumer price index rose 2.1% year-on-year in April 2022, exceeding 2% for the first time in 13.5 years (excluding the temporary increase immediately following the consumption tax hike). It rose 2.1% in May and 2.2% in June, marking three consecutive months of increases above 2%. Prices have risen sharply, particularly for electricity, gas, and imported food, and the reality is that 2% is nowhere near enough to warrant it. While the reality of "inflation" is becoming clear to everyone, many are beginning to realize that the real story is yet to come.

　Inflation is the decline in the value of a currency, meaning the value of the yen falls sharply and the value of goods rises. Since assets held in yen are rapidly depreciating, the wealthy in particular will begin to convert their yen into real assets, leading to a rush to buy luxury watches, which was the gist of the previous article. Since then, things have been developing as predicted.

Nagoya department stores are opening watch departments one after another

Articles like "Luxury watch boom in Nagoya: Why it's attracting the most attention nationwide" (Mainichi Shimbun, July 18th) and "Young people are also becoming buyers of high-value items: Foreign brands and watches, and social media also play a role" (Jiji Press, July 8th) have appeared in the media. The catalyst for this was the succession of newly renovated watch departments at Nagoya department stores. On July 6th, Matsuzakaya Nagoya renovated its watch department for the first time in 14 years and opened it as "GENTA The Watch." The floor space was expanded to 1200 square meters, approximately double the previous size. On June 20th, Nagoya Mitsukoshi Sakae opened a standalone shop for Swiss luxury watchmaker Patek Philippe on the first floor.

　At the opening of Matsuzakaya's watch department, it was reported that they had prepared a one-of-a-kind watch studded with blue sapphires by independent Swiss watchmaker Antoine Preziuso, priced at 181.5 million yen, which caused quite a stir. Meanwhile, Patek Philippe's watches are mainly in the 20 million yen price range, with some even costing close to 200 million yen. They are clearly targeting customers who are focused on "asset value."

Department store sales in the "art, jewelry, and precious metals" department doubled from the previous year

　As the Japanese economy recovers from the impact of the COVID-19 pandemic, department store sales are also growing significantly. According to the Japan Department Stores Association, nationwide department store sales for May increased 57.8% compared to the same month last year, marking the third consecutive month of growth. The "art, jewelry, and precious metals" category saw its 16th consecutive month of growth, with May's increase of 97.5%. In other words, sales were double those of the previous year. Money is rushing into luxury watches and other precious metals and jewelry.

　The Swiss watch export statistics for June compiled by the Federation of the Swiss Watch Industry also clearly show the boom in Japan. Exports to Japan totaled 140.2 million Swiss francs (approximately 199 billion yen), up 16.1% from the same month last year. The global increase was 8.1%, so Japan's growth was double that. Cumulative exports from January to June increased by 19.5%. The war in Ukraine and interest rate hikes in the US and Europe had given the impression that the global economy would slow down, but global consumption of luxury goods remains strong.

The environment is ready for an "inbound consumption boom"

　In addition to the shift to "physical assets" in anticipation of a weaker yen, there is another positive factor affecting Japanese watch sales: the increase in foreign tourists due to the weaker yen. Japan continues to restrict the number of people entering the country and is still in a state of "isolation," but according to estimates by the Japan National Tourism Organization (JNTO), the number of foreign visitors to Japan in June was just over 120,000, more than 10 times the 9251 people a year ago. If the number of tourists visiting Japan in earnest increases in the future, there is no doubt that inbound consumption will suddenly take off.

　In particular, when it comes to expensive items like watches, prices of products purchased before the yen's depreciation have not been adjusted sufficiently, creating a massive bargain sale for foreign tourists whose home currencies have become stronger due to the weak yen. The environment is ripe for a resurgence of the "inbound consumption boom" that occurred in 2013 and 14, when the yen suddenly weakened and Chinese tourists flooded Tokyo's Ginza district. If this happens, it's likely that not only super-expensive high-end items but also mid-priced items priced around 100 million yen will sell off in droves.

Tomoyuki Isoyama
Economic journalist and professor at Chiba University of Commerce. Born in Tokyo in 1962. Graduated from the School of Political Science and Economics at Waseda University. Served at the Nikkei Inc. as a securities reporter, deputy chief of the same department, Zurich bureau chief, Frankfurt bureau chief, and deputy editor-in-chief and editorial committee member for Nikkei Business. Left the company in 2011 to go independent. Covers a wide range of political, government, and business figures. His books include "The International Accounting Standards War: Final Chapter" and "The Secrets of Switzerland, the Brand Kingdom" (both published by Nikkei BP).
http://www.isoyamatomoyuki.com/