How Valuable is Tourism for Japan’s Economy?

Is there a ceiling for the number of annual visitors to Japan? It’s a widely asked question as inbound tourism continues its post-pandemic resurgence.

A monthly record of 3.38 million visitors in June saw Japan surpass 21.5 million arrivals in the first half of 2025. This total was led by four regional source markets, South Korea, China, Taiwan and Hong Kong, which account for 65% of all visitors. Chinese arrivals alone increased 53% compared to the same 2024 period.

 Barring a major economic shock, Japan is on track to welcome 40 million visitors for the first time this year. The odds are favourable, given the July-December period contributed 52% of annual arrivals in 2024. Japan’s government is cautiously optimistic. The official 2025 target is 40.2 million, up 8.9% on 2024, with the sharp post-Covid demand recovery expected to “slow to a more gradual growth rate.”

 Nevertheless, Japan’s tourism rebound is remarkable. Welcoming 40 million visitors in 2025 would more than double the 19.7 million in 2015 despite the 2020-2022 Covid interregnum.

 Previously, Japan had hoped to achieve the 40 million milestone in 2020, when Tokyo was due to host the Olympics. The pandemic intervened. It is now likely reach the target five years later, as Osaka hosts the 2025 World Expo.

 This has revived speculation about Japan’s ultimate goal: 60 million visitors in 2030.

 Calculating the Economic Returns

As the statistics trend upwards, what is the value for the world’s fifth-largest economy?

The Japan Tourism Agency says annual spending – including shopping, attractions, accommodations and eating and drinking – by foreign visitors hit JPY8.13 trillion in 2024, an eye-catching 53.4% increase from 2023. Average individual spending rose by 6.8%, to JPY226,724. Tourism expenditure continues to scale up, reaching a record JPY4.8 trillion in the first half of 2025, and should surpass JPY9 trillion across the calendar year.

Tourism spending is a notoriously vague set of metrics, though, requiring careful adjustment for variables such as inflation. So, how can an economic value be assigned to tourism, an umbrella term for a fragmented assortment of sub-sectors.

Mastercard Economics Institute (MEI) calculates that inbound tourism “contributed half of Japan’s GDP growth rate of 1.5% in 2023”, and 0.4% to the 0.1% GDP growth in 2024.” By contrast, the pre-pandemic average contribution of inbound tourism from 2010-2019 “was only 0.1% per year, even as Japan’s annual GDP growth averaged 1.2% over the same period.”

Using a multiplier created by the Organisation of Economic Cooperation & Development (OECD), the MEI concludes that every JPY100 spent by foreign visitors spurs an additional JPY80 in economic activity. Clearly, tourism matters more than ever to Japan’s macroeconomic health.

The World Travel & Tourism Council (WTTC) estimates the 2024 economic contribution at JPY44.6 trillion. It uses a broad-based accounting methodology, combining domestic and international travel and tourism spending, government spending on travel services, capital investment and travel supply chain purchases of goods and services.

Using the WTTC’s calculations, travel, tourism and associated investment comprised less than 7.5% of Japan’s economy, which was valued at JPY609.3 trillion in 2024. Viewed from a different angle, tourism helped Japan’s GDP surpass JPY600 trillion for the first time.

Japan welcomed a record 3.38 million visitors in June, pushing total arrivals in the first half of 2025 past 21.5 million. Image:sourced/AMC

Transforming Japan’s Investment Future

While tourism has bolstered Japan’s post-Covid recovery, the Ministry of Economics, Trade & Industry is modelling the future outlook. In June, it published a report: New Direction of Economic and Industrial Policies: Industrial Structure in 2040 Led by Growth Investment, noting the economy is “experiencing a turning point for the first time in about 30 years due to expanding domestic investment and rising wages.”

Transforming three key sectors – manufacturing, information technology & professional services and essential services – could drive GDP to JPY975 trillion in 2040. Tourism is included in “essential services”, along with food, beverage and accommodation services, retail/wholesale, human health and residential care, transportation and construction.

To strengthen the “earning power of tourism and inbound sectors,” the Ministry proposes “formulating an Entertainment and Creative Industry Strategy’” and devising policies to “push ahead with increasing value added in the industry.”

Developing new strategies across high-yield sectors is vital. Japan’s demographic, and consequently its productive, base is shrinking. The National Institute of Population & Social Security Research expects the 2020 population of 126.15 million to decrease to 112.6 million by 2040, when just 55% of the population will be working age, and fall below 100 million at some point between 2052 and 2056. Reformatting the economy to raise productivity and adapt to an acute labour shortage using AI, automation and robotics is a monumental task.

The Yen, Inflation & Shifting Social Attitudes

Then there’s the pivotal issue of the Yen. Japan is still striving to ascertain the degree to which surging inbound travel can be attributed to a weakened currency. The Yen depreciated from JPY128 to the US dollar in January 2023 to a 35-year low of JPY161 in June 2024. This stimulated inflation, which reached a two-year high of 3.5% in May, with food prices rising even faster.

Japan’s economy is a complex equation of services, manufacturing exports, investment and domestic consumption, and must quickly adapt to disrupted global trade conditions. The government agreed a 15% tariff deal with the US, which may dilute profits for Japanese companies. Meantime, the central bank is fighting to control inflation without causing further currency or bond yield volatility – or worsening Japan’s eye-watering debt-to-GDP level.

Against this challenging backdrop, tourism could generate much-needed revenue and investment while Japan transforms its industrial structure. That, however, also relies on external factors. As the Bank of Japan noted in April, “inbound tourism demand is highly likely to be solid if foreign exchange rates remain at around current levels.”

Growing the revenue from tourism must also be achieved within the context of shifting societal attitudes. Japan’s influx of tourists is widely blamed for overcrowding in cities and hotspot locations and inflating property and land prices. Expensive hotel rates are also a contentious issue with domestic travellers. Meanwhile, July’s upper house elections played out amid populist rhetoric about the cost of living and the vexatious issue of immigration.

Consequently, Japan’s flight path towards 60 million visitors is unlikely to be smooth, and may become increasingly turbulent socially, politically and economically.

 -Asia Media Centre