Japan has Finally Opened up to Tourism. Which Companies will Make a Comeback?
After two years of closing its doors to foreigners, Japan has finally opened-up completely on October 11. However, it's not all rosy for the Japanese tourism industry...
Japan has largely closed its doors to foreigners since 2020. But since October 11, the gates are finally open again!
The Japan tourism sector, which was booming with over 31 million tourists before the pandemic, is finally starting to see some light at the end of this two-year long tunnel...
Japan has been the slowest country in the OECD to open its borders
In the OECD, a organization containing the 38 richest countries in the world, Japan has been the last one to open up.
In fact, the country has been so reluctant to open up that they deliberately scheduled the reopening in stages:
First, in April, Japan announced that it would open-up to only 20,000 tourists a day and that every tourist was required to book a package-tour, apply for a special visa and have a tour guide following them at all times…
The uptake was so low that on July 7, Japan revised this plan to allow people to enter without a tour guide, but still required every tourist to have a visa, three Covid-vaccine shots and a pre-paid package-tour.
The uptake was still abominable and most potential tourists were shunned from the fact that they were required to book tours and apply for a visa.
The Japanese government has finally caved in - Tourism bonanza
So finally, on October 11, the government realized that it could no longer uphold the silly visa and tour-package rules and is now allowing tourists from 68 countries to come to Japan without a visa, tour-package or tour guide *if they have at least three Covid-vaccine shots.
To entice tourists even further, now that the yen is at its weakest level in decades, Japan has become the world’s biggest bargain bin.
Even Japan’s Prime Minister Fumio Kishida mentioned the merits of a weaker yen. The yen has recently fallen against almost all major currencies, in particular, the depreciation against the U.S. dollar has been conspicuous, and the rate of decline since the beginning of the year has reached almost 40%.
If tourism revenues rise, it will likely be a big push to increase the value of the Yen.
According to the World Bank, Japan's tourism revenues accounted for 5.4% of total exports in 2019.
Not all is rosy for the Japanese tourism industry - No Chinese allowed
However, one of the biggest obstacles to a major tourism recovery for Japan is China. China had the highest number of foreign tourists visiting Japan before Covid-19, but China continues to impose strict entry restrictions and shows no signs of abolishing its zero-Covid policy. Until that happens, Japan will likely not let Chinese tourists in without restrictive visa and tour-package procedures.
Of the number of visitors to Japan in 2019 from China, including Hong Kong, accounted for 37%(!) of all tourists .
According to the Japan Tourism Board, Chinese tourists spent about 30% more per capita than the average tourist, with more than half of their spending on shopping.
Given all this, it will take time for the retail industry, which relies on Chinese tourists, to bounce back to pre-Covid levels. Nevertheless, as travel restrictions have been lifted, the number of travelers from Japan to overseas are already seeing a rapid increase, which will be a tailwind for travel- and shopping related companies.
The winning companies of the reopening
The winners of the tourism reopening are many, but here are three interesting direct winners:
Japan Airport Terminal Co., Ltd. (日本空港ビルデング) (9706 JP): This company mainly operates all services at the Haneda Airport terminals (often ranked as the best airport in the world), but is also operating the duty-free shops at Narita Airport and Kansai Airport.
H.I.S Co., Ltd. (9603 JP): One of Japan’s largest travel agencies that offer package-tours, mobile services and travel insurances for both Japanese and foreign tourists in Japan.
Bic Camera, Inc. (3048 JP): The largest consumer electronics retailer chain in Japan. The company took a massive hit in sales when Japan closed down for tourists.
While these stocks have broadly risen so far this year, they have not returned to their 2019 levels. In fact, Japan Airport Terminal and H.I.S are valued less than half and Bic Camera has lost around 30% of their 2019 highs.
Due to Chinese tourists not being able to come to Japan, these companies, and other tourist related stocks, will likely not see revenues in line with 2019. This is especially true for Bic Camera, where Chinese tourists were over-represented in electronics shopping.
But as an investor in Japanese stocks, it is definitely not foolish to bet that the return of a tourism-boom bigger than 2019 is likely just around the corner.
