Tourists take photos of cherry trees blooming in front of a convenience store in Tokyo. Early blooming cherry trees in Tokyo, especially varieties like Kawasaki Zakura, begin to bloom from late February to early March, prior to the more common Yoshino cherry blossoms that peak in late March to early April. This phenomenon is linked to milder winters and certain varieties, providing a vibrant pink view against the backdrop of Tokyo’s urban areas before the main cherry blossom season begins.
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Foreign tourists have had a disproportionate impact on Japan’s economic growth in recent years. But as the yen strengthens, their influence may begin to fade, analysts said.
Tourists were an important driver for the revival of the Japanese economy. Many are drawn to the weakness of the yen, which makes shopping, entertainment, transportation, and the cheapest of the overnight stay.
What happens when the tide turns and the circle strengthens?
Travel spending in Japan has been rising sharply in recent years. In fact, according to the MasterCard Economics Institute, inbound tourism contributed to a half of Japan’s GDP growth rate of 1.5% in 2023 and 0.4 points of GDP growth rate of 0.1% last year.
It shows a dramatic change in the composition of the world’s fourth largest economy. Tourism contributed an average of 0.1 percentage points of GDP from 2010 to 2019 at a time when Japan’s GDP growth rate was on an average of 1.2%.
Mei’s report showed that the weaker yen made Japan a more attractive shopping destination. This is in stark contrast to other countries around the world, and David Mann’s main economist in the Asia-Pacific region said he prefers tourists to spend their time on experiences such as going to restaurants, concerts and bars.
Japan is one of the hottest travel destinations in Asia these days. So, according to Japanese tourism agencies, the country saw record visitors over the course of 2024 by 36.9 million visitors.
Not only that, there were also preliminary figures showing that annual spending by international visitors to Japan in 2024 reached a record high of 8.1 trillion yen ($5.406 billion), a significant increase of 53.4% ​​compared to a year ago.
The average personal spending for overseas travelers to Japan increased by 6.8% to 227,000 yen. However, some of Clement’s conditions that allowed this higher tourism interest could be attempted to reverse.
High domestic inflation has led the Bank of Japan to raise interest rates, as opposed to other major central banks that have cut interest rates. It was triggered in order circle On March 11th, the company will strengthen its height to five months against the US dollar.
Japan’s booming tourism industry
Yujiro Goto, head of Japan’s FX strategy at Nomura, told CNBC that weaker inbound tourism is negative for Japan’s GDP growth.
This is because the weakness of the circle is one of the main reasons for the acceleration of inbound tourism. A large valuation of currency is expected to reverse this trend.
The yen last traded at 148.26 against the greenback, bolstering about 7.2% compared to its 2025 high of 158.87.
“In my view, the yen’s small thanks to the historic lows, “The trend may not change for the USD from 161 to 146 so far,” he said.
Min Ju Kang, senior economist at the Bank of Dutch, Japan and South Korea, shares this view, but noted that inbound tourism still has room for growth given that the number of Chinese tourists has not yet recovered to pre-Covid levels.
“Measures announced over the weekend to promote consumption also include helping to increase wage growth and stimulate China’s asset markets, which could lead to an increase in China’s outbound tourism,” she added.
On Sunday, Beijing deployed plans to increase consumption, calling for measures to raise wages and “multiple measures” to stabilize the stock market, among other things.
The weak growth in tourism does not necessarily mean that Japan’s GDP will fall off the cliff. MasterCard’s Mann said that given the strong labor market and increased wages, it is expected that Japan’s contribution from domestic consumption will improve.
The photo, taken on February 20, 2025, shows the Tokyo Skytree (L), 634m high (2,080 feet) from the train line in the Oshiage region of Japan’s capital.
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Japan’s largest labor union announced last Friday that it was able to secure an average wage increase of 5.46% since April. This is the biggest increase in 34 years.
“So tourism could be mitigated, but then domestic consumption may take over as a driver of growth,” Mann said.
If there is appreciation for the Japanese Yen, Ing’s Kang said it will have a positive impact on the domestic economy and will boost private consumption and services.
Tourism Management
Goto also said that the gradual strength of the yen could slow the cost push inflation and improve actual wages among domestic residents. This will help shift GDP contributions from foreign expenditures to domestic expenditures.
Furthermore, GoTo said that overtourism has become a major issue in regions like Kyoto, but that foreign demand clearly supports wages and the inflation-positive feedback loop that BOJs want to achieve.
He also pointed out that “regional governments may consider higher taxes on foreign visitors (hotels, airports, etc.) that can support Japan’s financial situation while managing tourism flows.”
Mann concluded by stating that tourism has been a much larger contributor than everyone had expected over the past two years, “before it is a major contributor to the Japanese economy, replacing it with a slightly stronger contribution from domestic consumer spending.”
“The weakness in the yen is probably beginning to reverse at least this year, but it will be a long-term process rather than going backwards in just a month or two,” Mann added.
