Japan’s tourism boom could be the ‘reform’ its economy needs

Is Japan destined to be known more for tour buses than Toyotas? Tourism is, in fact, increasingly a key driver of Asia’s No. 2 economy – and arguably the best reason to be optimistic about Abenomics.

Five-plus years into his much-ballyhooed revival scheme, Prime Minister Shinzo Abe has put few big wins on the reform scoreboard. But thanks to a weaker yen, eased visa restrictions and stepped up advertising, 2017 marked a fifth straight record year of increased arrivals and tourism spending. Those nearly 29 million visitors in 2017 – a 19.3% jump from 2016 – spent more than US$36 billion.

The cash may be a drop in the bucket for a US$5 trillion economy, but the rate of increase matters for an industry that in 2016 accounted for 7.4% of GDP, rivaling the contribution from Japan’s fabled auto sector. Equally important is how the Abe government is targeting a far bigger role. By 2020, Japan expects to host 40 million visitors a year, on the way to 60 million by 2030.

Growing pains abound, of course. In Kyoto, Japan’s cultural Mecca, there’s considerable grousing about armies of backpack-clad gaijin clogging streets, buses and subway cars. Sustainability worries are getting increased press at a moment when Tokyo’s carbon footprint is growing. But Japan’s tourism boom is increasingly pressuring the government to raise its game on the economy.

Much of the credit goes to Abe’s mentor, Junichiro Koizumi, who as prime minister in 2003 launched the “Visit Japan” campaign from which Abenomics is now benefiting. Abe’s team wisely expanded the effort, including winning the 2020 Olympics for Tokyo. Yet as the country counts the cash windfall, there’s both good news and bad to digest.

Bad first. As helpful as the gains emanating from tourism are to Japan’s economy, currently enjoying its second-longest expansion since World War II, they may enable complacency. Coupled with heady global demand, the spoils may relieve pressure on Abenomics to implement vitally-needed structural reforms. Abe’s team, after all, has taken a glacial approach to loosening labor markets, encouraging entrepreneurship, empowering women, reducing bureaucracy and inspiring greater risk-taking.

The good news is that the flood of foreigners into Japan is highlighting the nation’s limitations. These include basic tourism infrastructure: aging airports, weak English proficiency, spotty Wi-Fi access, an overly rigid service sector and a dearth of smoke-free zones. Akihiko Tamura, head of the Japan Tourism Agency, isn’t being hyperbolic when he calls Japan an “undeveloped country” in catering to foreigners.

Exports and an ultra-loose monetary policy from the Bank of Japan are ginning up GDP and the Nikkei 225 average, but they haven’t boosted wage growth. Bold retooling is needed to overcome deflation, not pumping ever more yen into a financial system that’s neither lending nor borrowing. Just as remittances take the onus off developing nations to create opportunities at home, tourism booms can deaden the urgency for richer ones to do their jobs.

“If Japan doesn’t mature to more sustainable tourism models, the government’s targets may well prove impossible to reach,” Evan Burkosky of the tourism consultancy AVIAREPS Japan wrote in a September report.

It’s not quite Commodore Matthew Perry, the US naval officer whose arrival in Tokyo harbor in 1853 opened Japan to a curious world. But there is surely a Trojan horse dynamic at play here, forcing an inward-looking nation to lower its guard to the forces of globalization. Eased visa restrictions for Chinese nationals alone exemplify a cultural shift that augurs well for the economic outlook. In fact, Japan is racing to build casinos to win a bigger share of mainland Chinese tourism cash. Relaxed requirements are also pulling in more and more shoppers from Indonesia, the Philippines, Malaysia, Thailand and elsewhere.

The payoff can be seen in Osaka as much as anywhere. Japan’s gritty second city is enjoying an absolute tourism explosion. As of 2016, the city had enjoyed a 363% surge over five years, compared to a nationwide increase of 188%. That success owes much to increased availability of budget airline flights (something of a revolution for Japan in themselves), from China, Southeast Asia, South Korea and Taiwan.

Abe’s team should increase support for an industry that’s fattening government coffers, making Japan less reliant on exports and which could help defeat deflation. The services jobs associated with tourism are often less physically demanding – a good fit for a fast-graying workforce. The boom also provides fertile ground for small businesses and new startups catering to foreigners, from those enamored with Japanese culture and crafts to others struggling to find their way around a nation lacking in English signage and services.

Tourism will also prod Japan to embrace the sharing economy. In tradition-bound Japan, Uber, Airbnb and others struggle to operate, never mind thrive. A 2017 Yano Research Institute study estimated

Japan’s sharing economy at less than 0.005% of GDP, compared to 4.6% in China. Talk about a potential growth industry for young Japanese.

Economists wondering where Japan is heading tend to plow through reams of data and charts and speeches by Bank of Japan bigwigs. These days, more insights may come from counting tour buses idling in the nation’s teeming shopping districts.

(ASIA TIMES)