Japan's Tourism Surge Boosts Stock Market Outlook

Japan’s stock market is starting to recognize the potential for growth as an increasing number of tourists flood the country, leading to higher earnings for several companies. In 2024, Japan welcomed nearly 37 million inbound visitors, nearly a third of the nation’s population, according to data from the Japan National Tourism Organization. This influx of international tourists is expected to rise to 40.2 million in 2025, driven by a weak yen and the World Expo 2025 in Osaka.

With a global economic outlook clouded by uncertainty, particularly with the Trump presidency, Japan’s tourism-related stocks appear to be a relatively safe investment. Analysts predict that the benefits of this tourism surge, already evident in the department store sector, will spread to more domestic stocks in 2025.

Hotel operators like Kyoritsu Maintenance Co., which owns the ‘Dormy Inn’ budget hotel chain, and other firms such as Fujita Kanko Inc. and TKP Corp. are expected to capitalize on the increased demand by hiking prices. According to Hiroyuki Terada, senior analyst at UK-based Pelham Smithers Associates, Kyoritsu is positioned to see growth due to strong demand and higher prices, with plans to expand its portfolio of over 90 hotels across Japan. Terada also notes that the company’s maintenance costs, which have impacted earnings since the pandemic, should decrease in 2025.

Retailers, particularly those selling souvenirs like Kotobuki Spirits Co., are also expected to benefit. Goldman Sachs analysts, led by Norihiro Miyazaki, recently added the sweets maker to their top buy-rated picks for Japan, anticipating that higher foot traffic at airport gift shops will spur earnings growth. Major carrier ANA Holdings Inc. is also expanding international flights this year to cater to the influx of inbound travelers.

In the department store sector, J Front Retailing Co. reported an 18% increase in profit last quarter, fueled by a rise in duty-free sales. This has sparked optimism around other luxury consumer stocks. Second-hand goods retailer Treasure Factory Co. saw 10% of its sales revenue from inbound tourists, mainly driven by higher-priced designer items.

Tourism spending in Japan hit a record ¥8.1 trillion ($52.1 billion) in 2024, with average spending per person up 43% compared to pre-pandemic levels. Chinese tourists were the largest spenders, contributing 21% of the total consumption.

The Japanese government’s plans to ease entry restrictions for visitors from China could further boost tourism-related stocks. Vintage sellers like Treasure Factory are expected to see significant gains as Chinese tourists, known for their lavish spending, return in greater numbers.

However, these stocks are not without risks. A potential strengthening of the yen, if the Bank of Japan raises interest rates, could negatively impact inbound tourism. The swaps market has been pricing in such a move, with expectations for gradual yen appreciation. Yet, experts like Hui Shi Yeo, assistant manager of research at Singapore-based fintech firm iFast, believe the impact on tourism stocks will be limited. “Given the cautious approach by the Bank of Japan, the pace of any yen gains is likely to be gradual,” she stated.

Despite this, the World Expo in Osaka, scheduled to run from April to October, is expected to provide a boost to tourism regardless of the yen’s movements. The event is projected to attract around 3.5 million overseas visitors and generate almost ¥200 billion in foreign tourist spending, according to the Asia-Pacific Institute of Research. This major international event will play a pivotal role in sustaining Japan’s tourism boom in 2025.