Japan’s consumption recovery relies on the tourism boom as locals tighten their belts

Japan isn’t usually thought of as an economy where tourist spending is a key pillar, Thai-style. But as foreign visitors take advantage of the cheap yen, they have emerged as a prominent source of support for consumption while Japanese incomes stagnate.

The Bank of Japan’s monthly Real Consumption Activity Index shows that spending has only very recently recovered its pre-pandemic average. But using an adjusted metric that excludes the #tourism boom, the recovery looks much weaker.

Private consumption accounts for roughly half of the nation’s GDP, but it has been weighed down by weak wage growth and aging demographics for decades. The latest headwind is sustained inflation – one of the side effects of that cheap yen.