Clock Economic Observatory / Dark clouds hang over the future of the "inbound tourism effect" in Japan.

Prime Minister Sanae Takaichi's parliamentary response last November regarding a potential crisis in Taiwan continues to have repercussions, straining Japan-China relations. This impact is affecting the number of Chinese visitors to Japan, and coupled with the economic slowdown in China, the number of Chinese visitors in March 2026 is projected to be down 56% compared to the same month of the previous year. Will the sharp decline in Chinese tourists, who have been active consumers in Japan, become a major headwind for the luxury watch market? Rising economic journalist Tomoyuki Isoyama analyzes the situation.

Dark clouds hang over the future of the "inbound tourism effect" within Japan.

　According to estimates by the Japan National Tourism Organization (JNTO), the number of foreign visitors to Japan in March of this year was over 361 million, a 3.5% increase compared to the same month last year, setting a new record for March. The previous month, February, also saw a record high inbound tourism, suggesting that the booming inbound tourism trend continues.

　However, a closer look reveals a significant change: the number of visitors from China has plummeted. In March, the number fell by 56%, from 660,000 the previous year to 290,000. The cumulative total from January to March decreased by nearly 1.3 million, from 236 million the previous year to 107 million. In tourist destinations such as Kyoto, the number of Chinese tourists has drastically decreased, and Westerners have become more prominent.

Deteriorating Japan-China relations and the worsening Chinese economy

　The main reason for the decline in tourists is the cooling of Japan-China relations following Prime Minister Sanae Takaichi's remarks regarding a potential crisis in Taiwan, which has led the Chinese government to call for people to refrain from traveling to Japan. However, the deterioration of Japan-China relations is not the only reason. The significant deterioration of the Chinese economy is also contributing to the decline in tourists. Chinese products have become targets of tariff increases imposed by U.S. President Trump, resulting in a sharp decline in exports of Chinese goods to the United States. This has made it difficult for China to earn foreign currency through trade, which was a major source of income for the country.

　An increase in Chinese travelers going abroad has the same effect as increasing imports, which worsens the current account balance. The government hopes to curb the outflow of funds by discouraging overseas travel. The economic situation is that dire.

　In mid-May, U.S. President Trump visited China and met with President Xi Jinping, but China was in a situation where its economy could deteriorate further if it did not improve its relationship with the United States.

　According to data released by China's National Bureau of Statistics on May 18, industrial production in April increased by 4.1% year-on-year, a slowdown from the 5.7% increase in March. This was the lowest growth rate since July 2023. Retail sales also increased by only 0.2%, a significant slowdown from the 1.7% increase in March 2026. This was the lowest growth rate since December 2022.

　This decline in Chinese consumption is casting a significant shadow over the luxury watch market. According to export statistics from the Swiss Watch Federation (FH), exports to mainland China increased by 4.2% in March 2026 compared to the same month of the previous year, but were still down 7.8% compared to 2024, indicating continued stagnation. In terms of export value, China has fallen to fifth place, behind the United States, France, the United Kingdom, and Hong Kong. The decline in domestic consumption is leading to sluggish sales of luxury goods.

The Japanese watch market is in decline due to a sharp drop in Chinese tourists.

　This economic slowdown in China is also impacting sales of luxury watches in Japan. Swiss watch exports to Japan fell by 12.6% in March 2026, dropping to seventh place. While Japan is still the second-largest market after the US in the first half of the year, the country is showing signs of slowing down. The reason behind this is the sharp decline in Chinese tourists visiting Japan.

　According to the Japan Tourism Agency's "Inbound Consumption Trends Survey," the vast majority of foreign visitors to Japan who spend money on shopping are tourists from China. The estimated amount spent by foreign tourists in 2025 is 9,454.9 billion yen. Of that, 21%, or 2,058 billion yen, was attributed to tourists from China. Furthermore, "shopping expenses" accounted for an overwhelming 7619 billion yen of that total. The average "shopping expenses" per person amounted to 91,457 yen.

　Conversely, the sharp decline in inbound tourists from China is expected to lead to a decrease in inbound spending, particularly on shopping. This could potentially create headwinds for luxury watches and jewelry, including imports from Switzerland.

　Looking at the export destinations for Swiss watches in March 2026, France saw a significant increase of 72.4%. It jumped to second place, just behind the United States. With the ongoing wars between Ukraine and Russia, as well as between Israel and Palestine, and between Israel/the US and Iran, showing no signs of ending, tourist destinations are becoming limited. In this context, France, the world's largest tourist destination, is seeing a concentration of travelers, particularly in Paris, which appears to be boosting sales of luxury watches and other related industries.

　In order to explore the future of watch sales in Japan, it is essential to keep a close eye on the trends of inbound tourists.