Due to the depreciation of the Japanese yen, foreign tourists have been flocking to Japan, boosting the development of the Japanese economy. The Japan Tourism Agency is calling for the removal of the limit on duty-free shopping for foreign tourists as part of the tax reform for the 2025 fiscal year, aiming to better utilize the inbound demand.
Japan welcomed a record 17.8 million visitors in the first half of this year, significantly higher than pre-pandemic levels. On September 18th, the Japan National Tourism Organization released estimated data showing a 36.0% increase in foreign visitors to Japan in August from the same period last year, reaching 2.933 million visitors. The Japanese government estimates that by 2025, Japan will surpass its goal of attracting 32 million international visitors.
According to a report by Nikkei Asia on November 18th, the duty-free program in Japan has been expanding for years as a measure to revitalize the tourism industry, including incorporating consumer goods into duty-free range in 2014 and lowering the threshold for eligible shopping. Prior to the global spread of COVID-19, this strategy led to “explosive buying.”
Under the long-term weakness of the yen, the demand for high-end sake, beauty products, and other items from tourists has only been increasing. The Japan Tourism Agency believes that the duty-free limit has hindered further growth in sales.
Currently, foreign tourists in Japan can purchase items at duty-free retailers without paying consumption tax when taking them back home. However, for consumer goods such as food, drinks, cosmetics, and pharmaceuticals, each shopper has a daily shopping limit of 500,000 yen (approximately $3,200) per store.
As of the end of March, the number of stores participating in the duty-free program increased by 5.1% within six months, reaching 59,485.
Popular items purchased by foreign tourists in Japan include cosmetics, luxury brands, food, women’s and men’s clothing, and accessories. In May, duty-free sales at Japanese department stores more than tripled year-on-year, reaching a record 71.87 billion yen ($450.7 million). Besides Chinese tourists, visitors from South Korea, Taiwan, Hong Kong, Singapore, Thailand, and Malaysia also constitute a significant portion of duty-free shoppers in May.
Shopping accounts for a significant portion of inbound expenditures in Japan. In 2023, consumption accounted for 26.5% of inbound spending in Japan, compared to 18% in the United States. From July to September this year, shopping accounted for 28.9% of inbound expenditures in Japan, a year-on-year increase, while entertainment spending decreased to 4.7%.
The Japanese government has been striving to increase average spending per tourist, aiming to achieve 200,000 yen per person by 2025, higher than the 159,000 yen in 2019.
On the other hand, this program has also led to an increase in tourists buying duty-free goods to resell for profit. To prevent this situation, the Japanese government hopes to have shoppers prepay the consumption tax and then receive a refund upon showing the purchased goods at the time of departure.
Overreliance on tourist consumption poses risks. In the process of recovering from the pandemic, Japan is trying to reduce dependence on Chinese tourists and retail sales by attracting tourists from Western economies.
Additionally, the influx of foreign tourists into popular tourist cities in Japan has created issues of overtourism, severely disrupting the lives of local residents who have to deal with rising hotel prices and inappropriate tourist behavior. Restaurants are overcrowded, making it challenging to accommodate foreign visitors.