TT-425 -- A Reluctant Host? Japan's Tourism Industry

* * * * * * * * * T E R R I E 'S T A K E * * * * * * *
A weekly roundup of news & information from Terrie Lloyd.
(http://www.terrie.com)

General Edition Sunday, June 17, 2007 Issue No. 425

+++ INDEX

- What's new
- News
- Candidate roundup/Vacancies
- Upcoming events
- Corrections/Feedback
- News credits

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+++ WHAT'S NEW

Tourism is important for any country, both in terms of
foreign exchange earned and the goodwill that a delighted
visitor shares with friends and family once they get back
home. Japan is no exception, and in 2005 the nation
earned about JPY55trn (US$45bn) in tourist yen, in addition
to the sector employing about 4.6m people. That's about 10%
of the GDP and 8% of the work force respectively. So when
the country saw its desirability as a tourist destination
sink to around 45th place by pollees in the USA back in the
early 2000's, it was no wonder that then-PM Junichi
Koizumi, famously declared a national goal of increasing
the number of tourists visiting Japan from 5.21m to 10m by
2010.

The government department in charge of increasing tourism
was the Ministry of Land, Infrastructure, and Transport,
which came up with the Yokoso Japan campaign. We fired
arrows in Terrie's Take at the campaign when it was first
announced, not least of which because "Yokoso" means
nothing to anyone who doesn't speak Japanese -- i.e., 95%
of tourists. The bureaucrats had a field day telling the
Japanese public how they had this great plan, but then the
reality was that they allocated a trifling amount, we heard
a budget of just JPY350m, for marketing and chose Dentsu
over a number of better qualified foreign firms to conduct
the campaign. As a result, most of the Yokoso campaign has
been little more than local ads, in Japanese! Compare the
piffling JPY350m with Hawaii's tourism marketing budget of
US$38m (JPY4.5bn) a year, and you start to realize that
the Japanese government has no idea how to go about the
task of increasing visitor numbers.

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[...Article continues]

Despite the government's cheapskate efforts to focus
marketing on countries they think tourists should come
from: mainly the USA, UK, and other western nations, the
number of visitors has in fact surprisingly been rising
-- but from countries receiving very little attention
(with the possible exception of Korea) -- Japan's nearest
neighbors.

Of the 7.33m tourists who visited Japan in 2006, up about
600,000 over 2005, 71% came from Asia. More than 2.2m
people, or 29%, flew or ferried in from South Korea, up 21%
over last year. In second slot were 1.3m Taiwanese,
comprising 17.8% of total visitors, followed by 810,000
Chinese nationals and 820,000 Americans, comprising around
11.1% each. The number of Chinese has soared 25% in just
the last 12 months thanks to an easing in the issuance of
tour group visas from that country. South Koreans and
Taiwanese have had relaxed visa rules since 2005 and the
Aichi Expo, and this has substantially increased their
numbers as well.

You could think of the government's fixation on the West
as racial bias, or more likely an indication of its
inability to change its thinking on who globally has money
to travel these days. Friends in Kyushu tell us that the
locals there have no such illusions, and restaurants,
souvenir shops, tour companies, and hotels are quickly
putting up Korean and Chinese menus to cater for the surge
of new tourists entering Japan for a few days of comfort
and pampering. Maybe in a few years time, the Transport
Ministry will be filled in by someone from the Japan Hotel
Association as to just who is really booking the hotel
rooms every weekend.

This same fixation with where tourists should be coming
from also permeates Japan's big travel and hotel companies.
We find it laughable that traditional Japanese tour and
accommodation operators are cutting costs and services, and
lamenting that their massive losses are due to poor tourist
numbers. And yet, Asia luxury hotels opening in the last
few months are running at capacity. Most likely the real
problem for the Japanese operators is that they need to
start learning Chinese and not English.

Our impression is that most western visitors to Japan today
are young budget travellers and they are here to taste some
adventure and alternative entertainment as much as temples
and green tea. The well-heeled wealthy Westerners that the
government seems to be trying to attract are in fact not
even interested in Japan and instead are heading for more
exotic locations in China and Vietnam, where world-class
resorts and warmer beaches and oceans are to be found.

Now there is nothing wrong with backpackers coming to Japan
-- you can make some money catering to them. Take the Hotel
New Koyo in Minowa, Nagano, for example, which charges just
JPY2,500 a night for a single room. The 76-room hotel is
apparently 90% occupied by foreign backpackers. Then there
are the JPY3,000 - JPY4,000 a night capsule hotels in
Shibuya and Shinjuku -- which are coming back into their
own as foreign travelers brought up on manga find them
cheap, convenient, and a great cultural experience.

But the fact is that you have to sell a lot of rooms at this
rate to match the income from a single JPY70,000+ a night
room at the Mandarin hotel in the new Midtown complex in
Roppongi. And the Mandarin is having no problem filling
those rooms -- with both upscale Japanese and visitors from
elsewhere in Asia. The fact is that as living standards
rise in China, Korea, and Taiwan, those interested in
traveling want to venture not too far from their own
borders, go somewhere safe and not too challenging
culturally, and enjoy great scenery, creature comforts,
food, and shopping.

For most Asians, that place is Japan, so they are flocking
here as a result. Forget about Western tourists.

Indeed, this contrast between western backpackers and Asian
couples touring Japan so as to enjoy a taste of a better
life makes for a telling contrast. The Mandarin, Conrad,
and Peninsular (from September) are just a few examples of
swanky new Asian hotels that have been built on faith and
a vision of a better level of customer, and which are now
being rewarded for the investment risks taken.

Ironically, at the same time as this upscale market has
been forming, Japan's largest hotel operator, ANA, last
year entrusted its operations to the Intercontinental
group, then this year sold off many of its properties to
Morgan Stanley. It seems that the Japanese operators are
just not willing to re-invest in their own infrastructure
to meet international standards, nor to market properly
to overseas consumers. Now they're paying the price for
this timidity and lack of vision.

But is not too late to start upgrading. Jones Lang LaSalle
said last year that there were only 2,148 luxury hotel
rooms, i.e., those with average nightly rates of at least
JPY30,000, in Tokyo. Even after an additional 2,667 new
rooms come on stream through to 2010, Tokyo will still lag
behind London which has 5,196 such rooms, Paris with 4,336
rooms, and New York with 3,754 rooms.

Not just hotels, domestic tour operators also suffer from
the same myopic vision of what their client base should
look like and being slow to invest to upgrade. Thus some of
Japan's most interesting and attractive destinations have
languished simply because foreign clients can't "access"
(language, transport, and quality of accommodation) them
properly. Take Yakushima Island, Nagano-area skiing,
Okinawa scuba diving, and even shopping for arts and crafts
outside Tokyo, for example. All have potential. Temples in
Kyoto are good fodder for first-time visitors, but for the
more sophisticated and repeat visitors, they are clearly
losing their pulling power.

Perhaps the biggest contribution that Japan could make to
developing its tourist industry would be to start
appointing some bilingual foreign nationals who represent
the audiences of countries being targeted (nationals of
USA, China, Korea, Taiwan, UK, etc.) and to increase
incentives for local operators to upgrade their facilities
and offerings. There needs to be an understanding across
the board that Japan is unlikely to be successful selling
itself as a low-cost destination in Asia, and instead
should rise to the challenge of building a tourism support
system that meets global standards for comfort,
convenience, and cultural interest. No more lame
bureaucratic visions of "what should be", just realistic
interpretation of the global trends with the most valuable
of Japanese traits -- simplicity, quality, and style.

There are plenty of good examples of foreigners already
helping to increase tourism flows into Japan, and doing it
at a suitably value-added level. Look no further than the
14,000 Australian skiers visiting Nisseko each year, thanks
to the efforts of two Australian skiing pioneers, Ross
Findlay and Glenn Goulding.

Lastly, we'd note that outweighing any foreign tourism
segment is that of the Japanese visiting their own nation.
Over the lost decade of the 1990's, domestic travel volumes
plummeted dramatically as people tightened their purse
strings and it has really only been since 2004 that the
numbers have started recovering. This year an estimated
21.5m people traveled during Golden Week. As a result, and
to help things along, the government has said that it is
planning to create in 2008 or 2009 a second "Golden Week"
for Japanese workers.

Expected to occur in early November, the idea is to group
Sports Day, Labor Day, and Culture Day into a single week.
The plan is that salarymen will be able to take in two
weekends, and get out of Tokyo just as they did this year
during Golden Week. The Dai-ichi Life Research Institute
reckons that the financial impact of a second string of
holidays would be high, with the average household spending
an additional JPY1.64trn (US$13bn), or about 0.7% of the
current total annual household budget.

*** Our Feedback section this week is about TT423
concerning Japan's insistence on taking whales for
"scientific purposes", despite this being a minor and
not-much liked food source. Why are they doing it? More at
the bottom of the newsletter.

...The information janitors/

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+++ NEWS

- Visas to increase to 5 years
- Urine test for diesel over-exposure
- Current account surplus up 50.5%
- Single tax rate on investments
- Delays on Lithium batteries for next Prius

-> Visas to increase to 5 years

New legislation slated for 2009 will amongst other things
provide for a 5-year visa for highly skilled foreigners,
who are currently limited to 3 years. While this may sound
good, the downside is that the authorities will be
tightening up on residency permits and companies hiring
people without proper visas. ***Ed: more to come in the
media about these proposals, we're sure.** (Source: TT
commentary from nikkei.co.jp, Jun 15, 2007)

view source

-> Urine test for diesel over-exposure

Researchers at Kanazawa University have created a new test
that checks the amount of diesel-related contaminants in a
person's blood stream. The test relies on measuring
nitropyrene metabolites, where nitropyrene is created by
diesel exhaust fumes. ***Ed: This test may help the Tokyo
Metropolitan government and others in recent court cases
being conducted by asthma sufferers over the irritant
effects of diesel particulates in the air we breathe.**
(Source: TT commentary from nikkei.co.jp, Jun 15, 2007)

view source

-> Current account surplus up 50.5%

Despite obvious imbalances in global trade, Japan's current
account surplus is still roaring ahead. It was up 50.3% in
April over the same month a year ago. The surplus for April
was JPY1.98trn (US$16.33bn). The figures were about 35%
above forecasts and have caused the markets to expect that
as a result there will be a BoJ interest rate rise in Q3
of this year. (Source: TT commentary from gulf-times.com,
Jun 14, 2007)

view source

-> Single tax rate on investments

The government's Tax Commission has said that it recommends
setting a single fixed tax rate for all types of investment
income earned by individuals. If the recommendation becomes
law, which is probably will do by FY2008, it means that the
10% tax rate introduced in 2003 for income earned from
stocks, capital gains, and dividends will rise to 20%.
***Ed: Sigh, another good way for socialist minded
professors on the Commission to kill off the domestic stock
market...** (Source: TT commentary from nikkei.co.jp,
Jun 15, 2007)

-> Delays on Lithium batteries for next Prius

Toyota has nixed any speculation about an early release of
its third generation Prius hybrid car, when it said that it
will wait at least until spring 2009 before launching the
new model. Speculation as to the reason abounds, with the
Nikkan Kogyo newspaper saying that Toyota is worried about
the safety of Lithium batteries. ***Ed: Given the massive
temperatures that can be created if a battery
short-circuits -- this is probably a valid if somewhat
disappointing delay. Looks like Mitsubishi's new vehicle
may beat Toyota to the market.** (Source: TT commentary
from consumeraffairs.com, Jun 14, 2007)

view sourcse

NOTE: Broken links
Many online news sources remove their articles after just a
few days of posting them, thus breaking our links -- we
apologize for the inconvenience.

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+++ CORRECTIONS/FEEDBACK

In this section we run comments and corrections submitted
by readers. We encourage you to spot our mistakes and
amplify our points, by email, to editors@terrie.com

-> TT423 -- Whaling. We wondered why Japan seems to be
deliberately provoking its allies over a minor food source
that is whale meat.

*** Our reader opines: A plausible explanation for Japanese
whaling that I have heard is the slippery slope theory. The
theory goes that from a Japanese perspective the complete
and final banning of commercial whaling would be just the
start.

After achieving success with whales, NGOs such as
Greenpeace would then turn their full attention to other
species such as Tuna, Squid, Snapper etc, that are also
severely depleted. As you note, whale meat is not popular
in Japan, but any change in access to other fish stocks
would be very worrying for Japan. As you also note, the
argument against whaling is not always logical; there may
be large numbers of some species of whale, and it is
debatable whether or not it is more cruel that traditional
farming.

This would also concern Japanese bureaucrats who feel that
their anti-whaling opponents are irrational and therefore
likely to follow a ban on whaling with campaigns against
other species, depleted or otherwise. You note that
international opinion is against whaling, but this has only
crystallised in the last 20 years. It seems plausible that
international opinion could also harden on other species.
Therefore, the current Japanese position can be seen as a
bulwark against this.

The slippery slope theory sounds more plausible because it
ties in with your other points; bargaining chip, food
safety, and local politic.

There are probably several key factors that are influencing
Japan on this issue. As you know, the Japanese government
likes long-term plans. If the scope of their cost-benefit
analyses were 3-5 years then their actions would not make
sense. But they are most likely considering 50-100 year
timeframes, in which case their actions are a little more
understandable.

Anyhow, it will be interesting to see how it plays out.

***********************************************************
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