Chinese tourists have been a crucial component of Japan’s tourism sector, with approximately 5.7 million visiting in 2025, comprising nearly 23% of all international visitors, according to the Japan National Tourism Organization. The travel advisory is a concerning development for Japan’s economy, which heavily relies on this influx of tourists.

Economic analyst Takahide Kiuchi from the Nomura Research Institute predicts that the diplomatic tensions between Japan and China could lead to a loss of 1.79 trillion yen in Japan’s GDP over the next year, marking a 0.29% decrease in the nation’s economic output.

This situation echoes a similar downturn in 2013, when Chinese tourist numbers to Japan fell by nearly 8% following a territorial dispute over islands known as the Senkaku in Tokyo and the Diaoyu in Beijing. Kiuchi warns that the current diplomatic discord could potentially lead to similar economic repercussions.

Takahide Kiuchi, executive economist at Nomura Research Institute, said tensions between the two Asian powers could result in a 1.79 trillion yen drop in Japan’s GDP over the course of one year — a 0.29% decline in the country’s GDP.

Mainland Chinese tourists to Japan dropped nearly 8% in 2013 compared to 2012 when there was a dispute over islands off western Japan in September 2012, known as the Senkaku in Tokyo and Diaoyu in Beijing. Kiuchi sees a similar risk in how the current situation is unfolding.

Travel spending is a huge growth driver for the world’s fourth largest economy, with inbound tourism contributing 0.4 percentage point to Japan’s 0.1% annual GDP growth last year, according to the Mastercard Economics Institute.

Stefan Angrick, head of Japan at Moody’s Analytics, echoed Kiuchi, saying that “a sharp drop in Chinese travel to Japan would sting.” Angrick said that if Chinese arrivals were to halve — as they have during previous diplomatic spats — Japan’s GDP growth could shrink by 0.2 percentage point.

“[This is] Hardly catastrophic, but an unwelcome drag for an economy already struggling to find traction,” Angrick said.

Japan’s third quarter GDP contracted 0.4% sequentially, marking its first contraction in six quarters. On an annualized basis, the economy shrunk 1.8%.

The current diplomatic spat started on Nov. 8, when Takaichi said that a Chinese attempt to seize Taiwan by force would constitute a “survival-threatening situation” for Japan, adding that if U.S. warships intervened to break a Chinese blockade, Japan could be required to defend its ally.

China’s consul general in Osaka Xue Jian retaliated on X, reportedly saying “the dirty neck that sticks itself in must be cut off,” in a post that was later deleted.

Tokyo summoned China’s ambassador to protest the “extremely inappropriate” remark, followed by Beijing summoning Japan’s envoy, issuing travel warnings, and deploying ships and drones near the Senkaku islands, prompting Japan to scramble fighter jets.

Chinese state-run editorials also took aim at Japan, with state broadcaster CCTV saying last week that Takaichi’s remarks were of an “extremely egregious nature and impact” and was a “gross interference in China’s internal affairs.”

Beijing considers Taiwan to be part of its own territory, and has not ruled out the use of force against the island. Taiwan rejects this claim and says that only it’s people can decide its future.

Experts also told CNBC that the tensions could last for several months.

David Roche, veteran investor and president of Quantum Strategy, said this will last until Takaichi backs down from her position that there could be a potential Japanese military intervention over Taiwan.

“This is a big red line for China,” he said, adding, “this is seen by Beijing as a significant interference and a clear indication that Japan will be part of efforts to surround and deter China.”

Roche said that even the U.S. maintains a stance of “strategic ambiguity” when it comes to the defense of Taiwan.

The U.S.’ 1979 Taiwan Relations Act states that it “would consider any effort to determine the future of Taiwan by other than peaceful means” a matter of grave concern to the United States, but does not commit the U.S. to Taiwan’s defense, creating this “strategic ambiguity.”

Tobias Harris, founder and principal at political risk advisory firm Japan Foresight, told CNBC that this dispute could last longer than expected, as neither side can easily back down from their position.

Taiwan’s importance to Beijing means that it cannot easily accept what looks like a policy change by Takaichi, and though the Japanese leader has insisted that her statement did not signify a change in stance, she cannot easily back down, and risks looking weak if she caves to Chinese pressure, Harris said.

“With her approval ratings still strong, she can still afford to resist, and may in the near term benefit from resisting,” He said. Takaichi’s approval ratings currently stand at 69% as of Nov. 16, among the highest in Japanese history, according to the Asahi Shimbun newspaper.

This diplomatic spat could be the beginning of a “THAAD-like episode” in the countries’ bilateral relationship, causing “a prolonged chill in political and economic relations and a reduction in people-to-people exchanges.”

The “THAAD-like episode” refers to China reportedly organizing boycotts of South Korean products, banning group tours to South Korea and imposing a “soft ban” on K-pop content after South Korea deployed the U.S.′ Terminal High Altitude Area Defense anti-ballistic missile system, also known as THAAD, on its soil in 2016.