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The rapid growth in consumption by inbound tourists, a boon for the retail industry at a time when domestic consumption remains weak, is losing steam even as the number of visitors to Japan keeps rising. This can be explained with a variety of reasons, including the yen’s recent strength, decelerating growth in China and changing spending behavior by tourists themselves. The government has floated robust targets for doubling the number of incoming tourists and their consumption by the time Tokyo hosts the Summer Olympics in 2020. Policymakers and businesses should grasp what the slowdown in spending means and consider appropriate responses.

According to the Japan Tourism Agency, 14.01 million tourists arrived from overseas during the January-July period, up 26.7 percent from a year ago. The agency thinks the government and private-sector campaigns to promote inbound tourism for vacation seasons have paid off, offsetting negative factors such as currency fluctuations and the steep slowdown in the economic growth of China, from which nearly 5 million people visited Japan last year.

Consumption by inbound tourists rose 31.7 percent year-on-year during the January-March period, but that growth decelerated to 7.2 percent in the second quarter. Per tourist spending fell 5.4 percent in the first quarter and plunged 9.9 percent in the April-June period.

One obvious reason is the rise in the yen’s exchange rate since late last year, which reduced the value of the tourists’ own currencies for shopping here. It has also been reported that the aggressive shopping spree by Chinese tourists, who typically bought expensive household electronics products, jewelry and cosmetics in large volumes, has run its course. Spending by the average Chinese tourist in the April-June quarter fell 23 percent. China’s hike in April in tariffs on goods purchased overseas by its citizens is also believed to have curtailed their purchases of luxury brand products. The slowdown in spending by Chinese tourists has taken a bite out of the earnings of department stores and electronics retailers that had come to rely heavily on demand from inbound tourists.

In 2015, the number of foreign tourists to Japan — 19.73 million — and their spending — ¥3.48 trillion — were at record levels. The number of tourists from China roughly doubled from the previous year to 4.99 million. Visitors from China, South Korea and Taiwan accounted for more than 60 percent of the total. Inbound tourists outnumbered Japanese departing on overseas trips for the first time since 1970.

Inbound tourism has been thriving in recent years as the rapid economic growth in many Asian economies stimulated their consumers’ appetite for overseas travel, and as the yen’s sharp decline against the dollar since 2012 made trips to Japan more affordable. The government has taken steps to encourage inbound tourism, such as easing visa requirements for citizens of Southeast Asian nations and expanding access to duty-free shopping. Buoyed by the trend, the government set a new target for boosting the number of inbound tourists and their spending to 40 million and ¥8 trillion, respectively, in 2020.

So far this year, the growth in the number of inbound tourists has somewhat slowed but continues. But they are generally devoting less of their total travel expenses to shopping —from 41.8 percent last year to 37.8 percent in the April-June quarter. This may indicate that visitors are coming to Japan more in pursuit of travel experiences and services than for material pleasures such as shopping.

That in itself will be a positive development in terms of inbound travel to Japan taking root over the long term. It’s probably not that demand for Japanese products is on the wane, since internet shopping by Chinese consumers is increasing rapidly. The trade ministry estimates that the value of online purchases of Japanese goods by consumers in China will reach ¥1.08 trillion this year and expand to ¥2.33 trillion in 2019. The expansion in online shopping shows that people overseas do not need to come to Japan just to buy Japanese products.

Many of the challenges for Japan to further develop inbound tourism have already been highlighted in the government’s tourism strategy — such as diversifying tour routes for foreign visitors outside of the typical destinations such as Tokyo, Kyoto and Osaka, and tapping traditional culture and historical assets such as shrines and temples — which Japan has in abundance across the country. What will be crucial to these efforts are the initiatives of regional authorities, businesses and communities to exploit their local assets as unique features that appeal to inbound tourists. Efforts to build wider recognition of their local specialities may generate more broad-based, sustainable demand for consumption by tourists than the spending boom focused on luxury brand goods.

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