On October 6, Sanyo Shokai Ltd., a comprehensive apparel manufacturer, announced its consolidated net sales of 27,042 million yen for the six-months ended August 2025, down 3.1% from the previous year. Operating profit declined by 812 million yen from the previous year, resulting in an operating loss of 213 million yen. The company attributed the decline in sales and profit to a sharp drop in inbound demand, which led to a downturn in the luxury goods market and sluggish performance in department stores, its main sales channel.

It goes without saying that the company’s decline in profit was not caused solely by sluggish demand or problems with its sales channels. Still, I have no doubt that a backlash from the previously strong inbound demand, supported by the weak yen, was a key factor. That said, we should not overlook the structural changes that have emerged in inbound spending. According to a preliminary report released by the Japan Tourism Agency, total inbound spending in the first half of this year (January to June) reached 4.8053 trillion yen, or 123% of the level a year earlier. In the April-June quarter alone, it totaled 2.525 trillion yen, or 118% year-on-year, led by robust spending on accommodation, dining, transportation, and entertainment and services. In contrast, shopping expenditure during the April-June quarter remained almost unchanged at 662.3 billion yen, or 100.2% year-on-year. As a result, shopping’s share of total spending fell from 30.9% to 26.2%.

Total spending increased. However, spending per person (238,693 yen) saw almost no change from the same period last year, down just 0.1%. In other words, the expansion of the inbound market simply reflected an increase in the number of tourists. In fact, the number of foreign visitors to Japan during the January-June period reached 21.518 million, up 3.74 million from the previous year—the fastest pace on record to surpass 20 million. Yet signs of friction have begun to appear. Severe overtourism in some popular travel destinations, coupled with issues involving foreign residents in certain municipalities, has fueled a “Japan First” sentiment. Calls such as “Foreign tourists should pay the consumption tax, too—not just Japanese citizens struggling with soaring prices!” have lent support to the argument for abolishing the tax exemption system.

Illegal reselling by foreign visitors and fraudulent tax refunds by duty-free shops continue unabated. Some argue that abolishing the tax exemption system would bring an additional 200 billion yen into the national treasury. However, as a measure against such fraud, the government has already decided to shift to a “refund system,” under which the consumption tax will be reimbursed to foreign visitors after departure procedures, upon presenting their purchases at customs. The bakugai (“explosive buying”) boom is over. Yet “shopping” still ranks among the top purposes for visiting Japan. Naturally, if the duty-free incentive disappears, the total amount of spending will decline. Accordingly, the expected “200 billion yen” will not materialize, and tax revenues from related industries will also fall. At present, new discussions have begun on formulating the Fifth Tourism Nation Promotion Basic Plan. What kind of future should Japan aim for? Taking into consideration such perspectives as diversified tourism demand, regional revitalization, preservation of the natural and living environment, and tax fairness, I sincerely hope that constructive and forward-looking discussions, free from emotion-driven arguments, will develop further.

Takashi Mizukoshi, the President
This Week’s Focus, October 5-9, 2025