Recovery of Japan’s inbound tourism likely muted without Chinese visitors

With Japan set to further relax border restrictions and resume visa-free travel next week, it might be a while before inbound tourism regains the momentum it enjoyed before the pandemic.

Crucially, it remains uncertain when Chinese visitors — the largest source of tourist revenue before the COVID-19 outbreak — will be able to freely visit Japan due to the "COVID zero" policy in China that strictly curbs overseas travel by the country's residents.

Without being able to rely on Chinese tourists, “I believe that the pace of (inbound) recovery will be moderate,” said Wakaba Kobayashi, an economist at the Daiwa Institute of Research.

According to the Japan National Tourism Organization, Japan saw 31.9 million inbound tourists in 2019. Visitors from China and Hong Kong scored an overwhelming top share of about 11.89 million, accounting for 37% of the total. South Korean visitors were next with 5.58 million.

Kobayashi added that the speed of restoring inbound demand will likely vary by location, with prefectures popular with Chinese travelers before the pandemic likely to experience a slower recovery.

Shizuoka Prefecture was a popular destination, as 73% of its foreign tourists were from China in 2019, followed by Nara and Aichi prefectures with 57% and 56%, respectively. Hiroshima Prefecture had the lowest rate of 13%.

Prefectures that previously relied on Chinese visitors will need to brainstorm new promotional campaigns that target guests from other countries, Kobayashi said.

Shunsuke Kobayashi, chief economist at Mizuho Securities, also pointed out in a report released last week that the reopening does not mean that inbound tourism will leap back to life in the near future.

Even though Japan will relax border control measures considerably, visitors from countries that are still imposing strict border restrictions — most notably China — are still unable to come to Japan freely, he said.

Since spending by Chinese tourists accounted for about 44% of the total consumption by foreign travelers before the pandemic, the recovery of inbound consumption will remain limited for the time being, he added.

In 2019, spending by international travelers totaled about ¥4.8 trillion ($33.2 billion), but under current global circumstances, Mizuho’s Kobayashi estimates that a maximum room for inbound consumption recovery would be just around ¥1 trillion.

“It is actually doubtful whether even this ¥1 trillion consumption will come back swiftly,” he said, partly because Japan’s tourism industry has lost significant capacity to accept foreign guests due to the pandemic.

Optimists, however, might point to the yen's plummeting value, having fallen by ¥30 to reach a 24-year low against the dollar this year, as a potential boon for tourism. Japan has yet to truly benefit from a glut of overseas travelers ready to open their wallets despite that favorable exchange rate, but the end of pandemic-era border controls should finally enable the country to take advantage of the weak yen — and possibly put the brakes on a further drop.

And some inbound tourism is certainly better than no inbound tourism, Daiwa's Kobayashi noted.

“Given that inbound tourism has been nearly zero, it could deliver a significantly positive impact on the Japanese economy,” she said.

Japan will begin accepting independent tourists, remove a daily entry cap and drop visa requirements for 68 countries and regions starting Oct. 11.

Although the country eased border restrictions for international tourists in June — technically restarting inbound tourism for the first time in over two years — only those traveling on escorted package tours were able to enter and all visitors were required to obtain visas ahead of time.

Due to such rules, foreign tourists have only trickled back in, totaling just 18,981 from June to August, although the overall number of new arrivals to Japan in the same three months stood at 305,679, according to data released by the Immigration Services Agency.