Growing Tourism in Japan: Opportunity and Challenge

Inbound tourism in Japan has surged. The Japanese government announced that an estimated 36.87 million tourists visited Japan in 2024. This is the highest number since statistics began in 1964. Tourists spent ￥8.1395 trillion JPY (approximately $53 billion USD), also the highest figure since this statistic began in 2010.

Why are tourists flooding into Japan like this? Although prices have been rising recently due to the weak yen, visitors feel that prices in Japan are low and a visit to Japan is cheap.

However, inflation has made life difficult for the Japanese people. Rising oil and LNG prices, which account for a quarter of Japan's total imports, are a significant factor. This is inevitable as Japan is highly dependent on foreign sources of energy.

Non-consumption expenses, such as Japanese taxes and social insurance premiums, which are deducted from wages, are also rising. Conversely, real disposable income is declining because wages have not kept pace with higher prices. Unsurprisingly, per capita real wages in 2024 were down 0.2% from 2023, the third consecutive year of negative growth.

Sharp Increase in Tourism Income

Nevertheless, the increase in visitors to Japan and their consumption has been very positive for the Japanese economy.

This is evident from a look at the current account, the main pillar of the balance of payments, consisting of trade, services, and income. Among these, the rise in tourists visiting Japan since 2015 has led to a sharp increase in the travel balance, a part of the balance of services.

Until 2014, when more Japanese traveled abroad than foreigners visited Japan, the travel balance was in deficit. Recently, however, Japanese who travel to the United States say that the cost of living there, especially food, is extremely high.

For example, the price of a Big Mac (as of the end of 2024) is ￥480 ($3.19) in Japan. Meanwhile, it costs nearly 80% more, or $5.66 (￥856) in the US in the same period. It is not surprising that foreign tourists are rushing to Japan, and the Japanese are hesitant to go abroad.

Economic Shift

During Japan's period of rapid economic growth from 1960 to 1980, the country's balance of payments was dominated by a trade surplus. In Japanese schools, students were taught that Japan was a processing country, importing raw materials, converting them into finished products, and exporting them.　The weak yen once greatly enriched exporters. When the yen appreciated, the government intervened to weaken it by selling the yen and buying the dollar.

However, the yen's depreciation has not necessarily been a positive factor. Japanese companies such as Nissan and Panasonic, which once thrived on exports, have now fallen into a slump not only domestically but also in terms of exports.

*Panasonic's 4680 lithium-ion batteries for EVs, produced at the company's factory in Wakayama Prefecture, September 9, 2024. (©Sankei by Hiroto Kuwajima).*

Persistent Deficit

At the same time, Japan's trade balance remains in the red due to excessive imports and dependence on energy sources, while depreciation has escalated the cost increase. With occasional surpluses, Japan's trade balance has been in deficit since 2008, including for three consecutive years since 2021.

Furthermore, the digital balance of payments deficit has also grown due to the import of cloud services and generated AI-related services and goods.

Currently, a surplus in the travel balance is the only factor that can help improve the balance of payments. However, if the number of inbound tourists continues to increase, will it enrich Japanese people's lives?

Issues from Rising Tourism

The Japanese government is targeting a 2.4-fold increase in the number of visitors to Japan by 2030 to 60 million. It expects tourist spending to reach ￥15 trillion (approximately $98 billion) in the same time.

While there are positive aspects to the growth of inbound tourist spending, there are also negative impacts. Depending upon the local population's perception of inconveniences caused by the tourists, the negative impacts create the risk of overtourism.

Overtourism affecting the lives of local residents is occurring in several Japanese cities, but Japan is not alone. Cities in European countries such as Spain and Italy are also experiencing overtourism. In response, the governments of those countries are quickly implementing decisive measures to reduce the negative impacts on residents and the environment.

In Tokyo, a visit to downtown areas such as Shinjuku or Ginza quickly reveals how inundated these popular areas are with inbound visitors. Meanwhile, Japan's visitor base has diversified, and travel purposes have changed as numbers have grown in the post-COVID-19 period. Prior to COVID-19, downtown Tokyo was often filled with Chinese tourists buying things like electronics and toilets with washlets. It was common to see tourist buses transporting large numbers of such tourists parked in front of duty-free stores.

Since the pandemic has subsided, the landscape has changed. Chinese tourists now enjoy sightseeing rather than shopping. Tourists from other regions, such as Europe and Australia, are also flooding into Japanese tourist destinations for the same purpose.

Local Impacts

The government is poised to attract even more environmental tourists. However, favorite destinations such as Mount Fuji and Kyoto are overflowing with inbound tourists. It is now difficult for Kyoto locals to ride the buses. Rising prices make it difficult for ordinary Japanese to visit their favorite places.

Considering Japanese wages and pension payments have not kept pace with inflation, this is not surprising. For Japanese people, soaring hotel demand and prices due to inbound tourism are making travel feel out of reach.

'When in Rome'

A basic rule when visiting other countries is "When in Rome, do as the Romans do." However, not all visitors to Japan behave in a good manner, which also creates a big local nuisance. Problems receiving public attention include tourists painting graffiti on public property, obstructing traffic on the streets, kicking animals in tourist areas, and entering restricted areas with impunity.

When this author was stationed in New York in the 1980s, I saw some Japanese tourists talking loudly and behaving embarrassingly in public spaces. It was as if they thought it was okay because they were on holiday.

A book titled Smart Japanese, which ridiculed the bad manners of Japanese people abroad, became a bestseller during the bubble era (1986-1991). It was a comical cautionary tale about the behavior of tourists overseas and also served as a guide for those who were going abroad.

*Smart Japan (1986, Shinchosha. Courtesy of Yoshifumi Fukuzawa)*

Such a guide would serve today's tourists well, and several local areas have created video content to remind visitors. Meanwhile, vandalism and property damage are never excused. Nor is exploiting Japan's social safety net and national health insurance system.

Sufficient Overtourism Measures?

Japan is open about its plans to increase inbound tourism. At the same time, it is necessary to keep in mind the risks that could negatively impact the lives of the general public and have mitigation measures prepared in advance.

The legal framework must also be strengthened to facilitate prompt remedial action when necessary. Currently, the Japanese government is trying to ease visa requirements for tourists from China. However, this must be accompanied by transparent and thorough risk management.

First, it is necessary to prepare the environment for the acceptance and distribution of visitors to avoid overcrowding. This benefits everyone － including the tourists. We cannot afford to wait until an accident occurs to take action.

Author: Yoshifumi Fukuzawa