Japan's planned end of existing COVID-19 border control measures early next month is fueling hopes for a further recovery in inbound tourists to pre-pandemic levels and beyond.

The country is set to change its legal classification of the coronavirus and start treating it the same as the seasonal flu on May 8. Incoming travelers will no longer be required to show proof that they have been vaccinated at least three times or present a negative test result.

Inbound tourism had already become an integral part of Japan's economy prior to the imposition of COVID restrictions and its revival will likely be a welcome boost. The government has set a target for spending per visitor of 200,000 yen ($1,490) in 2025, up from the pre-pandemic figure of about 160,000 yen.

It also wants to encourage foreign visitors to spend more time in the countryside on trips. They spent only a night or so on average in 2019.

Tourists swamp Tokyo's Asakusa district, a popular spot filled with shops and eateries, on March 13, 2023. (Kyodo)

A weaker yen and pent-up demand are expected to serve as a tailwind to inbound tourism in the short-term. For the longer-term, Japan needs to focus more on "quality" experiences, industry experts say, with some areas already promoting on gastronomy tourism.

In the first three months of 2023, 4.79 million foreign travelers visited Japan, recovering to about 60 percent of pre-pandemic levels. The rebound was driven mainly by those from South Korea, Taiwan, Thailand, Hong Kong, and the United States, according to Japanese government data.

Meanwhile, the number of Chinese travelers, who used to account for about a third of total visitors to Japan, plunged 93.4 percent from January-March 2019, as the country still limits group tours by its citizens despite the end of its strict zero-COVID policy.

The strong recovery in overall figures prompted Takahide Kiuchi, executive economist at the Nomura Research Institute, to project that the monthly number of inbound tourists will return to the pre-pandemic level in August, six months earlier than his initial estimate.

"There is great potential for an increase in inbound demand and we can expect it to become a major driver of economic growth," Kiuchi said, adding that the challenge is to spur spending by removing supply bottlenecks.

For the January-March quarter, foreign visitors, including those on business trips, spent an estimated 212,000 yen on average during stays in Japan, including hotels, food, entertainment, shopping and transportation, government data showed. When the figure is limited to foreign tourists, it fell to around 186,000 yen.

Foreign tourists walk in Kyoto Prefecture, western Japan, on April 20, 2023. (Kyodo)

While the yen's weakness against the U.S. dollar and other currencies likely encouraged visitors from Australia, Europe and the United States to ramp up spending, they also tended to stay longer in Japan than those from other Asian nations.

Foreign tourists, especially from China, were known for their shopping sprees before the pandemic, splurging on everything from home appliances to cosmetics. Even if Chinese tourists do return to Japan in large numbers, a repeat of such spending may be too much to ask, industry watchers say.

"The focus of foreign tourists has shifted to the quality of experience rather than buying goods," said Shintaro Inagaki, a senior market economist at Mizuho Securities. "Spending per foreign visitor tends to decline in the countryside, so attaining that 200,000 yen goal while promoting more tourist flows to rural areas will not be easy," he said.

If the total number of foreign visitors to Japan tops 31.88 million, the highest-ever recorded in 2019, and the spending target for 200,000 yen per person is achieved, this will boost Japan's real gross domestic product by 1.2 percent a year, according to Mizuho.

That, however, will also depend on whether Japan can tackle head-on its most pressing challenges -- labor and accommodation shortages. For now, Japan too has seen a recovery in domestic travel demand following the lifting of antivirus curbs and government subsidies to revive it.

Labor shortages are particularly acute in the services sector, which was slow to recover from the COVID-19 shock. In a survey by research firm Teikoku Databank targeting over 11,700 firms, 77.8 percent in the hotel industry said they do not have enough full-time employees.

"At the end of the day, sustainable tourism will not happen unless tourists feel like coming back again and again. Japan needs more 'fans' in a sense," Inagaki added.

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