Drop in Chinese tourists could cost Japan 2 trillion yen, economist says

Japan could face losses exceeding 2 trillion yen ($12.73 billion) if the number of Chinese tourists drops sharply in the fallout of Japanese Prime Minister Sanae Takaichi's erroneous remarks on China's Taiwan, a Japanese economist has warned.

Should the current tense state of China-Japan relations persist for over a year, the resulting plummet in Chinese tourist spending will inflict a huge hit on Japan's tourism sector, especially its local economies, said Hideo Kumano, chief economist at the Tokyo-based Dai-ichi Life Research Institute, during an interview with China Media Group.

Following strong Chinese protests over Takaichi's remarks on Taiwan, a slew of air ticket cancellations – at least 491,000 – has been reported after China issued travel alerts for its citizens planning trips to Japan.

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Japan's fiscal stimulus 'counterproductive'

Japan's government approved a 21.3-trillion-yen economic stimulus package on Friday, a move aimed at supporting the economy as it grapples with stubborn inflation and U.S. tariffs.

However, Kumano said that implementing fiscal stimulus while Japan is experiencing inflation will be counterproductive.

"This is not fiscal stimulus during deflation; this is fiscal stimulus during inflation. It will lead to a further weakening of the yen and a subsequent increase in prices," he said.

Since increased tax revenue is insufficient to cover the spending gap, the Japanese government is forced to rely on fiscal operations that involve the additional issuance of government bonds.

This reliance, in turn, will drive up long-term interest rates, causing the Japanese economy to cool down further, warned the economist.