TT-994 - Inbound Travel Sector Outlook for 2025-26

If Trump doesn't upend the global economy, Japan's looking pretty good for 2025/26

Welcome to my first newsletter published on Substack, issue TT-994.

As most readers will know, I’ve been running www.japantravel.com as an inbound travel business in Japan since 2013, although I originally decided on the sector in April of 2011, post Tohoku earthquake. Creating a media platform to help rebuild tourism was a response to my own difficult situation back then, where I felt I had nothing to lose by starting a “social impact” business. Seems funny to use the term social impact now, but let’s remember that back in 2011 no one in their right mind wanted to invest in a sector targeting customers who were terrified to come to Japan due to exploding nuclear power plants and ongoing natural disasters. Indeed, most resident foreigners (302,000 of them) were hopping the next flight abroad.

Whether dumb or lucky, my bet on inbound travel turned out to be well timed for the bottom of what has since become a massive business expansion cycle. As of last year, 36.87MM foreigners visited Japan, putting the country at the No. 11 spot in global top tourist destinations in 2024. This is an almost 600% increase over 2011, and those millions of travelers spent about JPY8.1TRN (US$52BN approx.) here, according to the Japanese travel industry magazine Travel Voice. This equates to about 1.3% of GDP, and while that doesn’t seem like a lot, the secondary effects of all this extra revenue flooding in has been lifting many other boats.

For example, property values are going up, especially in rural areas near ski fields, services and products manufacturers and retailers have switched target markets and are hiring again so wages are going up, and the food industry as a whole is experiencing huge windfalls from free-spending tourists, ensuring that more exotic produce is now available across the country. Based on a Japanese academic study done some years ago when inbound spending was about 0.8% of GDP, it was found that the knock-on benefits of inbound/domestic tourism represented about 8% (mostly through employment at service companies) of GDP. So if we’re now almost double that number for inbound, the major area of expansion, I think we can reasonably assume that tourism as a slice of the economy probably stands at 10-12% now. Not too shabby, and I don’t think it’s over yet.

There are many reasons why Japan has become travel flavor of the year in 2025. Prime among these are 4 factors that are convincing people, especially teens - who then nag their parents - to come here: it’s cheap, it’s safe, it’s entertaining, and the food is fantastic. If these core ingredients don’t change too much, it’s hard to see Japan’s popularity declining. OK, many people are coming here because it’s on their bucket list, so the argument is that once done, they will go somewhere else. According to Wikipedia, about 1.5% of the worlds 3.5BN wage earners are at US$50,000 in income or higher, which is a sweet spot for people traveling to Japan. So that means a potential audience of 52.5MM wage earners plus their families - meaning around 250MM people in total. This implies that Japan could enjoy a stream of first timers for up to 7-8 years at the current rate. For the boom to continue longer, either the world needs to get a lot richer, which is doubtful, especially as the current political environment is likely to increase the GINI coefficient for most countries, OR, there will be repeat travelers.

Repeat travelers are in fact, highly beneficial to Japan. Not only do they hold up the inbound tourism numbers, but more importantly, as they grow familiar with the country they become more confident in striking out into more remote regions, and find ways to self-drive and self-service. Eventually, some of them become sufficiently enamored with Japan that they want to own property here, and this is a thesis we’re using for a new company called www.akiya2.com. I believe the JP government needs to prioritize repeat tourists and allocate a slice of the JPY45BN or so of this year’s departure taxes to promoting policies and investments that support people coming here annually - much like British people have second homes in Spain or France. Unfortunately at the same time, there is a specter of xenophobia rising over foreign property ownership, so I also expect the JP government to start implementing more regulation over who can buy what.

Back to the main question: is the tourism boom going to continue? Will the Japanese government hit its target of 60MM inbound travelers by 2030? My guess is that based on the audience size (TAM) above, coupled with likely ongoing gyrations in the financial world due to Trump, the chances of growth to 60MM travelers are slim. Getting to 38MM-40MM this year, maybe. However, even if Trump does tip the global stock and bond markets upside down, about 70% of inbound tourists this year are coming from nearby Asian countries, so Japan for them is “local” and safe, and therefore a reactionary precipitous drop in 2025 travelers due to tariffs is unlikely.

2026 is a lot less clear. If the yen stays relatively cheap (above JPY130 = US$1), and if the USA introduces even more fear for non-citizens traveling there, then Japan could become even more of a welcoming safe haven for tourists. On the other side of the coin, though, the global political/economic uncertainty does seem to be pushing the Japanese yen once again into the role of being a safe haven for non-US funds, which will mean a strengthening yen. So my prognosis is that a greater than 10% yen appreciation against the dollar will not derail most people’s travel plans for this year, but for those booking 2026 travel, it will make a difference and for some countries like South Korea and China (currently about 48% of the inbound volume), it will significantly constrict inflows.

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[Ed:] I mentioned our recently-established traditional homes business www.akiya2.com. In fact, the team is doing its first funding round - a friends and family pre-seed round. If you are interested in supporting the renovation and commercialization of traditional Japanese homes, and are among the first 49 people to respond, we will send you more information. Contact me at terrie@lincmedia.co.jp.