We need to talk about tourism and – specifically – the amount of it in Japan. With the country seeing a boom in this sector, the author of this article examines the investment implications.

There has been a great deal of positive noise about Japan lately – and not surprising – given the robust returns from its stock market (at least in local currency terms) resulting from corporate governance reports, among other factors. (See recent examples here and here.) Much of this attention centres on companies in areas such as manufacturing and consumer goods. However, a sector that has so far received little commentary is tourism. This article, which addresses the shortfall, is written by Katsunori Ogawa, chief portfolio manager of the Sakigake High Alpha fund at SuMi TRUST.

The editors of this news service are pleased to share these thoughts; the usual editorial disclaimers apply to views of outside contributors. If you wish to respond, email tom.burroughes@wealthbriefing.com

Tourists are returning to Japan and several key operators in the sector stand to benefit. The government, which is becoming especially concerned about over tourism, wants to ensure that tourists visit more rural areas – a policy that is creating opportunities for investors. 

With 31.9 million foreign visitors recorded in 2023, Japan's ambition of reaching 60 million annual foreign visitors by 2030 seems within reach. The favourable exchange rate has not only encouraged foreign travellers but has also boosted their spending in Japan.

In 2023 alone, foreign visitors collectively spent a record-breaking ¥5.3 trillion ($30 billion), marking a 9.9 per cent increase from pre-pandemic levels in 2019. Hotel prices reached an almost 30-year high in March this year, with the average cost for a hotel room increasing almost 20 per cent from last year (1).  

Despite a major uplift in the number of visitors and some locals expressing their frustrations, the Japanese government remains firmly committed to ensuring that tourism remains sustainable. That means reducing overcrowding in certain areas, as well as providing opportunities for local businesses in rural areas.

Considering this, and with many tourists shifting their focus from consumption of goods to authentic experiences, certain stocks are poised to benefit. Among them, Central Japan Railway Company emerges as a standout player, renowned for its expansive service network, notably the Tokaido Shinkansen Line. This route operates approximately 378 daily operations and contributes around 70 per cent of the company’s revenues. 

Japan’s public transport network is world renowned for its efficiency. The company is currently developing “maglev” trains that will cut down the Shinkansen journey time from Tokyo to Osaka, a distance of around 500 kilometres from two and a half hours to a blisteringly fast one hour.

Seibu Holdings, known for its dual ventures in railways and hotels, is positioned for significant revenue growth, particularly in the hospitality sector. With accommodation costs now comprising 34.6 per cent of total expenses, the company is strategically positioned to capitalise on evolving travel trends. 

Its diversified hotel portfolio, spanning iconic destinations such as Tokyo and Hakone to lesser-known locales such as Hiroshima and Okinawa, ensures a strong market presence across Japan's tourist circuits. As the Japanese government ramps up promotion of regional tourism, Seibu Holdings stands to benefit, with increased occupancy rates expected in its off-the-beaten-path establishments.

Operator of the Tokyo Disney Resort, with operations across entertainment and hospitality, the Oriental Land Company has been a major beneficiary of Japan’s tourism boom. Key facilities include Tokyo Disneyland, Tokyo DisneySea, seven Disney hotels and the Disney Resort monorail.

The company experienced record high net sales and levels of profit in its FY3/24 results, largely due to increased attendance and higher net sales per guest compared with the previous year (2). Oriental Land says that tourists from Taiwan, South Korea, and North America make up a large portion of the 12.7 per cent total attendance of overseas guests.

In a Japanese government white paper released in June this year, the government signalled its intention to attract foreign visitors to rural areas of the country, reducing the structural and environmental impact on large cities. 

As part of this shift to regional travel, Park24 is exceptionally well-placed to capitalise. Operators of managed parking facilities in Japan as well as Australia in the UK, the company’s earnings have grown almost 70 per cent in the past year, despite reasonably high levels of debt (3).  

The company is a market leader in the short-stay car park market in Japan, largely a result of its continual innovation. In differentiating its offering, the firm has opted for accessibility in many locations, as opposed to a bigger footprint, multi-storey lots.

With the government expected to ramp up initiatives to encourage regional travel, we expect Park24’s services to remain in high demand.

According to a recent report from Euromonitor International, almost 20 per cent of Japanese tourists prefer to travel solo, outpacing the global average (7.2 per cent) (4). That’s placing a higher demand on accommodation providers already experiencing boom conditions and Kyoritsu Maintenance is just one operator expected to outperform.

Their high-quality resort business aims to elevate the traditional “boarding house” concept to a unique healing resort encompassing a hot spring in, focusing on offering authentic Japanese resort experiences. With the government strategy promoting less-visited tourist destinations, more tourists are expected to seek out destinations similar to those operated by Kyoritsu Maintenance. 

ANA Holdings, the holding firm of Japan’s largest airline, All Nippon Airways (ANA), recorded record profits for the year ending 31 March, doubling its operating profit year-on-year to ¥208 billion ($1.3 billion). Now.concentratiing on international expansion as a key part of its long-term growth plan, the company is operating three carriers at different price points and flight lengths in order to cater to a wide range of demand for customers travelling to Japan from all over the globe.

Japanese convenience stores are a major draw for international tourists. And Urban mini markets that offer low prices are one pillar of Pan Pacific International Holdings’ strategy. They complement more general merchandise options for Japanese locals, as well as discount store operations.

In response to the dangers of overtourism, the government has launched a prevention plan by promoting less-visited destinations and infrastructure improvements. Actions include direct bus routes from train stations to tourist spots and higher fares during peak hours. For instance, Yamanashi prefecture now charges Y2,000 to climb Mount Fuji due to safety concerns.

Despite overtourism concerns, the Japanese government has signalled its intention to facilitate increasing tourism levels, while introducing sustainable measures to alleviate the strain on infrastructure, as well as the Japanese environment. We expect that to continue to positively impact the Japanese economy, which has battled the ramifications of a weak yen. 

Footnotes

1, Six times more: Call 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 Stocks Considered For Value Investing Opportunities (yahoo.com)
4, When Japan travels, it doesn’t mind going it alone – The Japan Times