July 21, 2016, 20:00 JST

Inbound tourism feels the pinch of the strong yen

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In June 2016, the number of foreign visitors to Japan was 1.99 million persons, up by 23.9% year on year. It is an acceleration from the 15.3% year on year growth in May. The acceleration comes as a relief, as the growth rate of foreign visitors was decelerating sharply since the beginning of the year.

By country of origin, the number of visitors from China was 582,500 in June, followed by 397,800 visitors from Taiwan and 347,400 visitors from South Korea. These three countries account for 67% of all foreign visitors to Japan. We are seeing a deceleration in the growth rate of inbound tourists across all three countries.

While the rebound in June is a relief and a confirmation that foreign tourism will likely continue to offer a rare high growth opportunity in Japan, a deceleration in its growth rate seems inevitable due to the recent strength of yen.

The pain from the strong yen is most visible in the per capita spending by foreign visitors. In the April-June 2016 quarter, the per capita spending by foreign visitors declined by 9.9% from a year ago. By nationality, the decline was sharpest among visitors from China. Their per capita spending went down by 22.9% from a year ago.

As a result, the aggregate spending by visitors from China declined by 1.4% despite the continued rise in the number of visitors from China. The overall aggregate spending by foreign visitors did manage to rise by 7.3% year on year, but it is a significant deceleration from 71.5% increase on average in 2015. 

In late March 2016, the Japanese government revised up its targeted figure for foreign tourists from 20 million persons by 2020 to 40 million persons by 2020. It requires an average growth of 19% per year for the next 4 years. With the yen factor turning from a tail wind to a head wind, Japan may need a new strategy in attempting to nurture its inbound tourism industry.