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A record number of tourists are spending more than ever in Japan. That may be good news for certain sectors, such as department stores, but still represents a small slice of the overall economy, say analysts.
In 2014, a record 13.4 million foreign tourists visited Japan, spending a combined 2 trillion yen ($16.9 billion), a 43 percent surge on the 2013 figures, according to government estimates. The government itself is bullish that it is on track to reach its target of attracting more than 20 million by 2020, when the Tokyo Olympics will be held, according to a Japan Tourism Agency official.
"The number of tourists look set to double to over 20 million by the time the Tokyo Olympics will be held – the weaker yen is having a big effect," said Eiji Kinouchi, Daiwa Securities' chief technical strategist.
Japan's tourism industry still has room to grow – it generated 5.0 percent of Japan's gross domestic product (GDP) in 2012, compared to nearly 10 percent in the European Union, North America and Southeast Asia, he said, citing figures based on government data.
Still, spending by foreign tourists generated just 0.5 percent of GDP in 2014, according to Nomura economist Minoru Nogimori. With numbers expected to double, however, "we think increased spending by foreign visitors, via services exports (travel receipts), will become an important factor supporting the Japanese economy," he said.
Some are more cautious. "The volume of tourism expenditure remains small, and spillover effects from rising employment or capital spending have proved elusive," said Capital Economics' Marcel Thieliant in a note. He calculates spending by overseas visitors is only 0.3 percent of nominal GDP.
Some relief for retailers, but not enough
Spending by tourists may have grown by leaps and bounds last year at Japan's beleaguered department stores, but that still wasn't enough to compensate for the sales slump caused by last April's consumption tax hike, from 5 to 8 percent.
The tax hike is widely blamed for tipping Japan itself into negative GDP growth in the second and third quarters, the definition of a technical recession.
Tourist spending surged 175 percent on-year in December, as travelers took advantage of the weak yen to snap up items like clothing, cosmetics and jewelry.
Even then, same store sales nationwide fell 0.1 percent on-year in 2014, according to Japan Department Stores Association data; in December alone, sales dropped 1.7 percent on-year, down for the ninth consecutive month.
Betting on the Chinese spending big
A bright spot, however, is that the biggest spenders, the mainland Chinese, continued to arrive in droves and spent big bucks, despite the rising diplomatic tensions between China and Japan over a territorial row.
The number of mainland Chinese nearly doubled (+83 percent) to 2.4 million in 2014 from the previous year and they dropped an average of 231,753 yen ($1,955), up 10.4 percent on-year.
The trend is not lost on Japanese authorities, who this month announced new visa category for tourists with a "considerable" income. The Ministry of Foreign Affairs does not disclose how much the "considerable" means, according to an official. A Chinese media report (cited in Japanese media) puts the figure at 500,000 yuan ($80,409).
In addition, Japan has eased visa requirements for mainland Chinese tourists in what it calls the "sufficient" income category – as long as one family member has been granted a visa in the past three years, immediate family will be eligible for visitor pass. And they will no longer be required to go to Okinawa or the Tohoku region.
"Spending by Chinese visitors to Japan is likely to continue growing as conditions for granting multiple-entry visas to Chinese visitors were eased," Nomura economists said in a note.