Japan's tourism sector faces headwinds as regional arrivals decline

Japan's tourism industry is navigating a complex period of adjustment as recent data reveals a cooling trend in international spending and arrivals. While the country welcomed a record 42.7 million international visitors in 2025, according to the Japan National Tourism Organization (JNTO), the latest figures suggest that shifting travel patterns and emerging economic challenges are now testing the resilience of the government's "Tourism-Oriented Country" strategy.

Shrinking arrivals

The momentum of Japan's inbound recovery has hit a significant snag. According to JNTO, arrivals from the Chinese mainland plummeted by 45.3 percent in December 2025 compared to the previous year, with visitor numbers retreating to approximately 330,400. This downturn has led the Japan Travel Bureau Foundation, the nation's largest travel agency, to forecast a 3 percent decline in total inbound arrivals for 2026, citing the ongoing volatility in regional demand.

This shift is particularly evident during the current Spring Festival period. According to national broadcaster NHK, while China is seeing a surge in domestic and outbound travels, Japan's appeal as a top-tier overseas destination has noticeably cooled. Travelers are increasingly pivoting toward neighboring markets such as Thailand and Vietnam, which have seen a corresponding rise in popularity.

The tourism sector is currently grappling with a mix of geopolitical friction and heightened safety concerns. Diplomatic tensions – strained by Prime Minister Takaichi's recent controversial remarks – alongside travel advisories from the Chinese Foreign Ministry, have significantly dampened visitor enthusiasm. This cooling sentiment was further exacerbated by a violent robbery targeting Chinese nationals in Tokyo's Ueno district in late January.

Impact on retail and local business

The impact of these shifting demographics is most evident in regional Japan and high-end retail. According to Bloomberg, duty-free sales at major department stores saw declines of up to 19 percent in January. Consequently, the Nihon Keizai Shimbun reports that Japan's six largest department store operators have slashed their average profit forecasts for the current quarter by 24 percent.

In the historic city of Matsumoto, Nagano Prefecture, local businesses are feeling the pinch. A local antique dealer said that the absence of high-spending visitors has been a major blow. "It is a big hit to the antique industry when international buyers stop coming or buying in Japan," he told the CMG.

"Chinese guests make up 30 percent of our international visitors, mostly during the winter," a hotel manager in Nagano Prefecture said. "Reservations have dropped significantly, and local shops are very worried." A local restaurant owner also expressed a deep concern, saying that Chinese tourists have almost disappeared from the streets over the past three months, which directly impacting revenue.

Caution overshadows weak yen advantage

Experts suggest the current slump highlights Japan's vulnerability to regional diplomatic fluctuations. Li Qingru, a researcher at the Chinese Academy of Social Sciences, noted that the situation presents "extraordinary survival challenges" for small and medium-sized enterprises. 

"As a core source of tourists, the decline in Chinese visitors directly hits the service industry, from catering to accommodation," Li observed. 

While a weak yen remains a strong draw for global travelers, industry analysts maintain a gloomy outlook for overall foreign visitor expenditure in 2026. UBS Securities warned that if visitor numbers from the mainland continue to halve through 2026, Japan could see a 4 percent decline in total international arrivals for the year. 

Despite these headwinds, the Japanese government maintains its target of 60 million visitors by 2030. However, the focus is now shifting toward increasing per-capita spending and diversifying visitor sources to reduce the industry's dependence on any single market amid global volatility.