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Japan’s fragile economy, already hit by U.S. tariffs and declining real estate investment, faces further damage from diplomatic issues between Japan and China.
China, angered by Japanese Prime Minister Sanae Takaichi’s comments about Taiwan, advised its citizens on Friday to refrain from traveling to the country. Japan’s tourism stocks fell in response to the warning, but experts warned that the impact could be long-lasting and even more severe.
According to Japan’s National Tourism Organization, foreign tourists from mainland China are the largest group of foreign visitors to Japan so far in 2025, accounting for about 5.7 million people, or nearly 23% of all visitors.
Tohide Kiuchi, executive economist at Nomura Research Institute, said tensions between Asia’s two superpowers could reduce Japan’s GDP by 1.79 trillion yen in one year, which could reduce Japan’s GDP by 0.29%.
Mainland Chinese tourists visiting Japan fell nearly 8% in 2013 compared to 2012 due to a September 2012 dispute over islands off the coast of western Japan known as Tokyo’s Senkaku Islands and Beijing’s Diaoyu Islands. Kiuchi sees similar risks in the current unfolding situation.
Travel spending is a major growth driver for the world’s fourth-largest economy, with inbound tourism contributing 0.4 percentage points to Japan’s annual GDP growth of 0.1% last year, according to the Mastercard Economic Research Institute.
Stefan Anrich, head of Japan at Moody’s Analytics, agreed with Kiuchi and said, “The drastic drop in Chinese travel to Japan will be painful.” Anrik said Japan’s GDP growth could shrink by 0.2 percentage points if the number of Chinese nationals entering the country were halved, as was the case during past diplomatic disputes.
“(This) is not catastrophic, but it is an unwanted drag on an economy that is already struggling to find traction,” Anric said.
Japan’s third quarter GDP decreased by 0.4% from the previous quarter, the first negative quarterly decline in six quarters. On an annual basis, the economy shrank by 1.8%.
rising tension
The current diplomatic dispute began on November 8th. Takaichi said a Chinese attempt to seize Taiwan by force would be an “existentially threatening situation” for Japan, adding that Japan could be called upon to defend its ally if U.S. warships intervene to break China’s blockade.
Xue Jian, the Chinese Consul General in Osaka, reportedly retaliated against Mr.
The Japanese government summoned the Chinese ambassador to protest the “highly inappropriate” comments, and Beijing subsequently summoned Japan’s special envoy, issued a travel warning, deployed ships and drones near the Senkaku Islands, and prompted Japan to scramble fighter jets.
Chinese state-run editorials have also criticized Japan, with state broadcaster CCTV saying last week that Gaoichi’s comments were of “extremely egregious nature and influence” and constituted “grave interference in China’s internal affairs.”
The Chinese government considers Taiwan to be part of its territory, and has not ruled out the possibility of using force against the island. Taiwan rejects this claim, insisting that only the Taiwanese people can decide their future.
Experts also told CNBC that tensions could last for months.
David Roche, a veteran investor and president of Quantum Strategy, said this situation will continue until Takaichi retracts his position that there is a possibility of Japanese military intervention in Taiwan.
“This is a big red line for China,” he said, adding, “The Chinese government views this as serious interference and a clear signal that Japan will join efforts to encircle and deter China.”
Roche said that even the United States maintains a posture of “strategic ambiguity” when it comes to defending Taiwan.
Although the United States’ Taiwan Relations Act of 1979 states that it will “consider all efforts to determine Taiwan’s future by other than peaceful means,” it does not commit the United States to the defense of Taiwan, creating this “strategic ambiguity.”
Tobias Harris, founder and president of political risk advisory firm Japan Foresight, told CNBC that the dispute could last longer than expected because neither side can easily walk back their positions.
Taiwan’s importance to China means it won’t accept something like Gaoichi’s policy changes easily, and while the Japanese leader insists her comments do not represent a change in position, Harris said it cannot back down easily and risks appearing weak if it bows to Chinese pressure.
“With her approval ratings still high, she still has room to resist and may benefit from resisting in the short term,” he said. According to the Asahi Shimbun, Takaichi’s approval rating was 69% as of November 16, the highest in Japanese history.
The diplomatic spat could mark the beginning of a “THAAD-like episode” in bilateral relations between the two countries, leading to a “prolonged cooling of political and economic relations and a reduction in people-to-people exchanges.”
The “THAAD-like episode” refers to the fact that after South Korea deployed the US Terminal High Altitude Area Defense anti-ballistic missile system, also known as THAAD, in 2016, China reportedly organized a boycott of South Korean products, banned group travel to South Korea, and imposed a “soft ban” on K-pop content.
