Japanese tourism and retail stocks plummeted on Monday following a warning from China to its citizens to avoid traveling to Japan. The advisory comes amid a spat over comments made by Japanese Prime Minister Sanae Takaichi regarding Taiwan. Takaichi, considered a China hawk, suggested that Japan could intervene militarily in the event of an attack on the self-ruled island, which China claims as its own.
The remarks have sparked a diplomatic row between Asia’s two largest economies, which have close economic ties. China is the largest source of tourists to Japan, with nearly 7.5 million visitors in the first nine months of 2025. These tourists spent approximately 590 billion yen ($3.8 billion) in the third quarter, accounting for 28% of all foreign tourist spending. Japan was also the fourth-most popular destination for Chinese tourists last year, contributing to a record number of foreign arrivals.
The dispute has had an immediate impact on Japanese stocks, with cosmetics firm Shiseido’s shares falling by as much as 11.4%. Department store group Takashimaya and Pan Pacific, the owner of discount retail chain Don Quijote, also saw significant declines, with shares dropping by 6% and 8.4%, respectively. Uniqlo owner Fast Retailing, which has a substantial presence in China, fell by nearly 6%.
The tensions between Japan and China have been escalating since Takaichi’s comments, which were made just days after she met with Chinese President Xi Jinping. The Chinese government has summoned the Japanese ambassador and advised its citizens to avoid traveling to Japan, citing safety concerns. In response, Japan’s Chief Cabinet Secretary Minoru Kihara stated that the announcement was “incompatible with the broader direction agreed upon by the leaders of the two nations.”
The diplomatic spat could have significant economic implications for Japan, which is already facing a sluggish economy. The country’s GDP contracted by 0.4% in the third quarter, and analysts warn that the tensions could escalate into a full-blown trade dispute. This could include China restricting exports of rare earths or imposing restrictions on Japanese exports, which could have a devastating impact on the country’s car industry.
The situation is being closely monitored, with the top official in Japan’s foreign ministry for Asia-Pacific affairs traveling to China for talks with his counterpart. The diplomatic row has significant implications for the region and could have far-reaching consequences for Japan’s economy and relations with China.