We need to talk about tourism in Japan, especially its size. Tourism is booming in Japan, and the author of this article looks at the investment implications.
There has been a lot of positive stuff being said about Japan lately, which is not surprising, given the strong returns its stock market (at least in local currency terms) has seen as a result of corporate governance reports and the like. (See here and here for recent examples.) Much of this attention has been focused on companies in sectors such as manufacturing and consumer goods. But one sector that has received less attention so far is tourism. This article on the shortfall was written by Ogawa Katsunori, Chief Portfolio Manager of Sumitomo Mitsui Trust Bank’s Sakigake High Alpha Fund.
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Tourists are returning to Japan, and several key players in the sector stand to benefit. The government is particularly concerned about overtourism and wants to encourage tourists to visit more rural areas. The policy is creating opportunities for investors.
With 31.9 million foreign tourists recorded in 2023, Japan’s goal of reaching 60 million foreign tourists per year by 2030 seems achievable. A favorable exchange rate is not only encouraging foreign tourists, but also increasing their spending in Japan.
In 2023 alone, total spending by foreign tourists is expected to reach a record high of 5.3 trillion yen ($30 billion), up 9.9% from pre-pandemic 2019. Hotel rates hit their highest price in nearly 30 years in March this year, with the average price of a hotel room up about 20% from last year (1).
Despite a huge increase in tourist numbers and some local residents expressing dissatisfaction, the Japanese government remains committed to ensuring the sustainability of tourism, which means easing congestion in certain areas and providing opportunities for local businesses in rural areas.
With this in mind, certain stocks are poised to benefit as many tourists shift their focus from consuming goods to experiencing authentic experiences. Among them, Central Japan Railway Company has emerged as a standout, known for its extensive network of services including the Tokaido Shinkansen bullet train. The line operates around 378 trains per day and accounts for around 70% of the company’s revenue.
Japan’s public transport system is world-renowned for its efficiency, and the company is currently developing a “linear motor car” that will cut travel time from the Shinkansen bullet train to just one hour, covering the 310-mile distance from Tokyo to Osaka from two and a half hours.
Known for its dual rail and hotel businesses, Seibu Holdings is expected to see significant revenue growth, especially in its hospitality division, and with lodging now accounting for 34.6% of total expenses, the company is strategically positioned to capitalize on evolving travel trends.
From well-known destinations such as Tokyo and Hakone to lesser known locations such as Hiroshima and Okinawa, the company’s diverse hotel portfolio has ensured a strong market presence across Japan’s tourist destinations. As the Japanese government steps up its promotion of regional tourism, Seibu Holdings stands to benefit from expected increased occupancy rates at its properties in more remote locations.
Oriental Land, the entertainment and hospitality company behind Tokyo Disney Resort, is a major beneficiary of Japan’s tourism boom. Its main facilities include Tokyo Disneyland, Tokyo DisneySea, seven Disney hotels and the Disney Resort Monorail.
The company recorded record sales and profits for the fiscal year ending March 2024, mainly due to an increase in visitor numbers and sales per visitor compared to the previous year.(2) According to the company, tourists from Taiwan, South Korea, and North America accounted for a large proportion of the 12.7% of total international visitors.
In the Japanese government’s Tourism White Paper released in June this year, the government stated its intention to attract foreign tourists to the country’s rural areas while reducing the structural and environmental impacts on major cities.
As part of the shift towards regional travel, Park24 is extremely well placed to make a profit. The company, which operates managed car parks in Japan, Australia and the UK, has seen its revenue grow by around 70% in the past year, despite having fairly high debt loads(3).
Through continuous innovation, the company has become a leader in the short-term parking market in Japan. To differentiate the services it offers, the company emphasizes accessibility at many locations, rather than large, multi-storey parking lots.
With the government expected to step up efforts to encourage regional travel, Park24’s services are expected to remain in high demand.
According to a recent report from Euromonitor International, around 20% of Japanese tourists prefer to travel alone, higher than the global average (7.2%)(4). This will increase demand for an already booming accommodation provider, with Kyoritsu Maintenance being just one of the operators expected to do well.
The company’s high-quality resort business focuses on providing a genuine Japanese resort experience by elevating the traditional “boarding house” concept to a unique healing resort with hot springs. With the government’s strategy to promote unvisited tourist destinations, it is expected that an increasing number of tourists will seek out tourist destinations similar to those operated by Kyoritsu Maintenance.
ANA Holdings, the holding company for Japan’s largest airline, All Nippon Airways (ANA), posted its highest-ever profit in the fiscal year that ended March 31, with operating profit doubling from the previous year to 208 billion yen ($1.3 billion). The company is now focusing on international expansion as a key part of its long-term growth plan, and operates three airlines with different price ranges and flight times to meet the wide range of demand from customers visiting Japan from around the world.
Japan’s convenience stores are a big attraction for foreign tourists, and low-cost urban mini-markets are one of the pillars of Pan Pacific International Holdings’ strategy, complementing its more general merchandise options and discount store operations aimed at local Japanese customers.
In response to the dangers of overtourism, the government has introduced preventative measures by promoting less-visited destinations and improving infrastructure. Measures include direct bus routes from train stations to tourist sites and higher fares during peak hours. For example, Yamanashi Prefecture currently sets the fee for climbing Mount Fuji at 2,000 yen due to safety concerns.
Despite concerns about overtourism, the Japanese government has signaled its intention to encourage an increase in tourists while introducing sustainable measures to reduce the strain on infrastructure and Japan’s environment. We expect this will continue to have a positive impact on the Japanese economy, which has been battling the effects of a weak yen.
footnote
1. Six-fold increase: Calls for higher prices for foreigners amid Japan tourism boom (smh.com.au)
2, sp2024ex-04e.pdf (olc.co.jp)
3. PARK24 and two other Japanese exchange-traded stocks are being considered as value investing opportunities (yahoo.com)
4. In Japan, people don’t mind traveling alone – The Japan Times
