(Bloomberg) --
Japan’s goal of attracting 40 million visitors this year may already be in danger, following China’s decision to ban tour groups going overseas to help contain the impact of the rapidly spreading novel coronavirus.
Chinese tourists made up almost a third of all arrivals to Japan in 2019, in a year that saw visitor growth impacted by a diplomatic spat with South Korea and a series of extreme weather events.
Once considered a tourism backwater with a reputation for expensive prices and a lack of foreign language skills, Japan’s inbound boom has been one of the few unambiguous economic success stories under Prime Minister Shinzo Abe. Aided by government steps to relax visa approvals, visitors to Japan have surged almost four-fold to 31.9 million since 2012, buoying sectors from cosmetics to consumer goods and hospitality.
The government’s original goal of attracting 20 million visitors this year, when it will host the Olympic games, was met with five years to spare and swiftly doubled. That goal could now be in doubt, with the tour restriction the latest brake on growth.
The pneumonia-like illness has led China to take unprecedented moves to lock down travel as the number of infections in the country surged to almost 2,000. Chinese President Xi Jinping has ordered a faster response to the virus, with the ban on all outgoing overseas group tours to take effect Monday. Domestic group tours were suspended on Friday.
The restrictions come in the middle of Lunar New Year, a peak time for travel by Chinese to Japan. Almost a third of visitors from China came as part of tour groups in 2018, the most recent year for which information was available from the Japan National Tourism Organization.
Escalating Feud
Chinese spending has been a highlight for Japan’s tourism industry in the last year. Visitors from China are the largest from any country, and their spending rose 15% to 1.77 trillion yen ($16.2 billion), making up almost 37% of the total.
That helped alleviate a plunge in arrivals from South Korea, which fell by more than 60% in December from the year earlier amid an escalating feud that’s spread from historical grievances to trade, investment and military ties.
A series of typhoons making landfall in metropolitan areas in 2018 and 2019 also hurt tourism and dented the country’s reputation for smooth public transport, after the storms wreaked havoc on airports and infrastructure in Tokyo and Osaka.
In Tokyo’s tourist hubs over the weekend, a visible impact from the virus wasn’t yet apparent. Overseas shoppers were seen buying face masks in bulk in the tourist hotspot of Asakusa, while at the Mitsukoshi department store in upscale Ginza, favored by Chinese visitors, fewer shoppers were seen buying cosmetics than usual.
The impact to Japan’s economy from the virus could exceed that of the SARS outbreak in 2003, due to the growth in inbound tourists in the interim, Mitsubishi UFJ Morgan Stanley Securities economists Shuji Tonouchi and Lee Chiwoong wrote in a note before the tour group ban was announced.
“If the new China virus spreads further to reach a scale similar to 2003, we would expect the negative impact of a drop off in foreign tourists coming to Japan to exceed that seen in 2003,” they wrote. “In that case, we would anticipate an overall negative impact on Japan’s GDP, even after reflecting any boosts from fewer Japanese traveling abroad.”
©2020 Bloomberg L.P.
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