Credit...Greg Baker/Agence France-Presse — Getty Images
Diplomatic Feud With China Weighs on Japan’s Economy
A standoff over the security of Taiwan has led to a steep decline in the number of Chinese visitors to Japan, which is heavily dependent on the tourists.
by https://www.nytimes.com/by/river-akira-davis · NY TimesA diplomatic dispute between Japan and China over the security of Taiwan is weighing on the Japanese economy, which is heavily dependent on Chinese tourists.
China has urged its citizens to refrain from traveling to Japan as retaliation over a remark made in November by the Japanese prime minister, Sanae Takaichi, that aggravated Beijing. Ms. Takaichi suggested that Japan would come to the defense of Taiwan, which China claims as its territory, in the event of a Chinese invasion.
Chinese travelers, the largest source of inbound tourism and tourist spending in Japan, have pulled back sharply. Arrivals fell 45 percent in December from a year earlier.
On Monday, data released by the Japanese government revealed that inbound tourist spending dropped 2.8 percent to $45.6 billion in the last three months of last year. It was the first year-on-year decline in more than four years. Overall, Japan’s economy grew 0.2 percent in the quarter, the report showed.
China in recent years has accounted for around a quarter of all foreign visitors to Japan, according to official figures. The Japan National Tourism Organization reported recently that Chinese tourists spent about a fourth more than other visitors last year.
In Japan, Chinese tourists are major spenders at places like the nation’s department stores, where they snap up tax-free clothes and cosmetics. Six of those stores recently projected double-digit year-on-year declines in operating profit for the three months through February.
The complications with China come as Ms. Takaichi is desperately trying to bolster the Japanese economy. The prime minister, whose party won in a landslide in elections last week, has proposed making large state-led investments in important sectors such as semiconductors, as well as a suspension of some consumption taxes to help support Japan’s inflation-weary households.
Following Ms. Takaichi’s election victory on Feb. 8, Beijing said the prime minister should “pursue a peaceful path” and retract her remarks about Taiwan. Emboldened by a fresh public mandate, Ms. Takaichi appears unlikely to offer near-term concessions, meaning that more economic pain could be in store for Japan.
China’s foreign ministry has reiterated its call for people to refrain from traveling to Japan ahead of the Lunar New Year holiday period, which starts on Tuesday. The ministry cited “unstable” public security in Japan in a social media post in January.
Japan is also bracing for China to begin choking its imports of rare earths — scarce groups of metals used in devices ranging from electric vehicle motors to missile systems. Japan has for years been working to reduce its reliance but remains heavily dependent on China for imports of many types of the metals.
Naohiko Baba, chief economist at Barclays in Japan, said the bank was forecasting 1.2 percent growth for Japan’s economy in the fiscal year beginning in April. That figure was boosted by about 0.2 to 0.3 percentage points because of the Takaichi government’s spending policies, he said.
Still, Mr. Baba said the China risk “remains unquantified.” In the last major eruption of Japan-China frictions in 2012, during a dispute over a string of islands in the East China Sea, annual visitors from China dropped 25 percent. If a similar scenario plays out, it could shave over 0.1 points off the fiscal 2026 growth rate, Mr. Baba said.
Even more concerning, Mr. Baba said, are the potential export restrictions on rare earths. Japan has stockpiles lasting 60 to 180 days, he said, “so if current tensions persist for two to three months, we could see a significant impact on production processes.”