The recent deterioration of relations between Japan and China following the issue of Taiwan is significantly affecting the Japanese economy, which is heavily dependent on tourism and the trade with his main partner Asian. The Chinese Government has urged its citizens to avoid trips to Japan, in response to the Prime Minister’s statements Sanae Takaichi on the defense of Taiwan in the event of conflict, which has caused an abrupt drop in the arrival of visitors from China.
Chinese tourist arrivals fell 45% in December compared to the previous yearaccording to official data, which has directly impacted tourist spending, which decreased by 2.8% to USD 45.6 billion in the last quarter of 2025. This is the first year-on-year decline in more than four years. Department stores, where Chinese tourists are often big consumersanticipate double-digit declines in their profits through February.
China accounts for about a quarter of foreign visitors to Japan and, according to the Japan National Tourism Organization, these tourists spend approximately 25% more than the rest. The Chinese Ministry of Foreign Affairs has reiterated its recommendation not to travel to Japan, citing a “unstable public security”just before the Lunar New Year holiday.
Trade tension adds an additional risk factor. Japan is preparing for the possibility that China will restrict the export of rare earths, essential materials for industries such as electric automobiles and defense. Although Japan has tried to diversify its suppliers, it remains heavily dependent on Chinese imports, whose current reserves would only cover between 60 and 180 days of industrial demand, according to Barclays estimates.
In this context, the growth of the Japanese economy was 0.2% in the last quarter of 2025, below market expectations, which projected 1.6%. He annual gross domestic product It advanced 1.1%, driven by the recovery of private consumption, which represents close to 60% of GDP and grew 1.4% during the year. However, private consumption showed a slowdown in the last quarter, with an increase of 0.1%, reflecting the difficulties that households face due to the increase in food prices.
Corporate investment increased 1.5% annually and 0.2% quarterly, while real estate investment rose 4.8% in the last quarter after a significant drop in the previous period. Exports grew 2.9% annually, although they fell 0.3% in the last three months, and imports increased 4% in the year, which limited further economic growth.
The prime minister Sanae Takaichirecently confirmed in office after a resounding election victory on February 8, seeks to strengthen the economy through public investments in strategic sectors such as semiconductors and the possible suspension of certain consumption taxes to alleviate inflationary pressure on households. The government has already approved a multimillion-dollar supplementary budget, according to spokesman Minoru Kihara, with the aim of sustaining growth and protecting living standards.
The Bank of Japan remains committed to gradually normalize monetary policy after years of ultra-low ratesalthough the weak economic momentum and the persistence of inflation have curbed the possibility of further immediate interest rate increases. Analysts such as Kazutaka Maeda of the Meiji Yasuda Research Institute warn that the recovery remains fragile and the economy has yet to demonstrate that it can grow sustainably.
On the other hand, tariff pressure from the United States, under the administration of Donald Trump, continues to affect the Japanese export industry. Although tariffs on Japanese products, especially cars, have stabilized, companies remain cautious in the face of the uncertain international environment. Japan’s growth in 2026 will depend, according to forecasts from the Japanese Center for Economic Research, on the evolution of real wages and the consumption capacity of households, as well as the development of diplomatic and trade conflicts with its main partners.
Naohiko Baba, chief economist at Barclays in Japan, estimates that the government’s expansionary fiscal policy could contribute between 0.2 and 0.3 percentage points to growth next year, although the “China risk” still cannot be fully quantified. If restrictions on tourism and exports worsen, the Japanese economy could face a new slowdown in the coming months.
(With information from EFE and Reuters)
