How Japan stepped past China’s tourist trap

China’s leverage stems from the historical importance (Opens in new window) of Chinese visitors to Japan’s tourism market. Chinese arrivals reached 9.6 million in 2019, nearing a third of all foreign arrivals.

After the pandemic and the end of China’s zero-Covid policy, the recovery was rapid. Mainland arrivals climbed from 2.4 million in 2023 (Opens in new window) to 9.1 million in 2025 (Opens in new window), pushing China’s share of Japan’s foreign-visitor market from 9.7% up to 21.3%.

Growth reversed sharply in December 2025 (Opens in new window). Chinese arrivals fell from 604,200 in December 2024 to just 330,400 in December 2025. The slide has continued since. Over the first seven months of 2026, Chinese visitors accounted for only 10.2% of the market, roughly half their 2025 share.

The approach mirrored China’s use of tourism as economic leverage against Palau (Opens in new window) and South Korea (Opens in new window). Airlines and tour operators (Opens in new window) subsequently reduced Japan-bound capacity.

The decline has hurt portions of the tourism market popular with Chinese visitors. Osaka’s average daily hotel room rate fell 18.8% year-on-year (Opens in new window) in June even as the national average rose 2.1%. Tax-free sales to tourists also fell by about 20% (Opens in new window) in January 2026.

But Japan never needed to replace every Chinese visitor. It needed to replace much of the roughly ¥2 trillion (Opens in new window) in spending generated by Chinese visitors in 2025. The answer lies in long-haul tourists, who generally spend more per visit.

The average Chinese visitor spent ¥246,154 (Opens in new window) in Japan in 2025, well behind the ¥341,383 (Opens in new window) spent by the average American and the ¥393,710 (Opens in new window) spent by the average German.

Japan can absorb a large decline in Chinese arrivals by replacing the revenue they generate, rather than their total numbers.

Japan has largely done so in 2026. JTB (Opens in new window) forecasted a 2.8% decline in foreign visitors this year alongside a 0.6% rise in total travel spending, to ¥9.6 trillion. Made in January, the forecast is holding up well with only a 2% decline in foreign visitors and a 1.3% increase in spending through June. If the forecast holds, Japan’s tourism revenue could increase even as China’s share of the market falls sharply.

The weaker yen has also helped make Japan more attractive to long-haul visitors. Historically (Opens in new window) a 1% real depreciation of the yen is associated with a 0.7% to 2.5% rise in tourist arrivals. The yen has weakened ~4.2% against the dollar since November 2025. US arrivals (Opens in new window) are up 6.5%, and German (Opens in new window) arrivals are up 7.3% through July 2026. Japan is on track to set a record for US visitors this year.

The weak-yen advantage may not last. Sustained appreciation could reduce Japan’s appeal. The yen (Opens in new window) weakened to near ¥164 per dollar in July before an intervention-backed rally brought it back to ¥155–159. A forecast (Opens in new window) strengthening of the yen in early 2027 could unwind long-haul demand next year.

In 2019, a comparable collapse in Chinese tourism would have posed a much greater threat. Chinese visitors accounted for roughly one-third of all foreign visitors to Japan, and Japan had far fewer alternative markets capable of absorbing the shock.

By 2026 Chinese arrivals have dropped by more than half and Japan’s overall tourism market is still close to record highs.

China still has economic leverage (Opens in new window) over Japanese businesses. Beijing can create problems by limiting tourism, trade or access to its consumer market. But economic power does not automatically translate into economic control.

Japan’s tourism industry illustrates that the power of coercion is only as strong as the target’s exposure and the speed with which it can find another option.

Diversification has not eliminated Japan’s vulnerability to China; it has reduced it. Geographic diversification is becoming a structural feature of Japan’s tourism market, while the spending advantage created by a weak yen may prove temporary.

The lesson extends beyond Japan. Palau and South Korea have also experienced Chinese tourism boycotts, while other economies in Asia remain similarly exposed. Japan’s experience suggests that the best defence against economic coercion is diversification: having enough alternatives that no single country can exert decisive pressure on an industry.