Prolonged tensions will hit Japanese economy heavily

Japanese Prime Minister Sanae Takaichi's erroneous and dangerous remarks in the Japanese Parliament on Nov 7, in which she suggested the possibility of Japan's armed intervention in the Taiwan Strait, rightfully sparked concerns that China-Japan ties could enter a "cold" phase.

Some in Japan have accused her of not only dragging the country into a "national crisis" but also casting a damaging shadow on Sino-Japanese economic and trade relations.

According to Japan's Ministry of Finance, from January to October this year, the total value of Japan's exports reached 90.33 trillion yen ($581 billion). Of this, exports to the Chinese mainland and the Hong Kong Special Administrative Region amounted to 20.52 trillion yen, or 22.7 percent of the total. This figure surpassed Japan's exports to the United States (16.79 trillion yen), the Association of Southeast Asian Nations (13.11 trillion yen) or the European Union (8.21 trillion yen).

During the same period, China's total exports amounted to $3.08 trillion, with exports to Japan totaling $129.48 billion, or 4.2 percent, according to China's General Administration of Customs.

Should trade and investment between China and Japan be severed, both countries would face significant challenges, but the consequences for Japan would go far beyond mere financial losses. The immediate impact would be felt most in Japan's tourism, retail and film industries — sectors that provide numerous jobs.

The World Travel & Tourism Council said in June 2024 that the travel and tourism sector was expected to contribute 7.5 percent to Japan's GDP last year. Meanwhile, data from the Japan National Tourism Organization show that visitors from the Chinese mainland and Hong Kong accounted for nearly 30 percent of all arrivals to Japan in the first 10 months of 2025, with the total number of visitor arrivals exceeding 35.5 million.

Chinese tourists also have strong spending power. According to the Japan Tourism Agency, from January to September, foreign visitors to Japan spent a total of 6.93 trillion yen. Of this, tourists from the Chinese mainland and Hong Kong contributed 2.05 trillion yen, about 30 percent of the total.

Following Takaichi's provocative remarks, a number of Chinese travel agencies suspended group tours to Japan, while major airlines offered free ticket refunds or itinerary changes for flights to Japan. The number of short-term visitors to Japan has dropped sharply.

On Nov 17, Takahide Kiuchi, executive economist at Nomura Research Institute, said that if the number of Chinese visitors to Japan declines significantly, Japan's GDP could drop by 0.29 percent. Kiuchi estimated that the economic loss over the course of one year would total 1.79 trillion yen.

Even Japan's TV drama industry could be hit, as Japanese TV stations rely heavily on the Chinese market to make high-cost drama series profitable.

The deeper risk lies in the interconnectedness of the two countries' supply chains. Chinese products often contain parts made by Japanese companies, while Japanese products rely on components that are mostly produced by Chinese manufacturers. For Japan, China has become an indispensable partner in some sectors.

If Takaichi refuses to retract her remarks and continues to provoke China, she could erode investor confidence in both countries' markets. Prolonged tensions could create fundamental challenges for Japan's economy.