Trump's tariff policy has severely impacted the confidence of Japanese businesses, yet the tourism industry has achieved its second-highest record ever, despite the challenging conditions.
In April 2025, the confidence index of Japanese companies fell to 42.7 due to new tariff policies by President Trump of the United States, hitting its lowest point since February 2023, with the manufacturing and service industries particularly affected. According to a survey by Teikoku Databank, companies are uneasy about the economic outlook. On the other hand, in March 2025, Japan's tourism industry experienced a strong recovery, attracting 3,497,600 foreign visitors, with spending reaching 2.272 trillion yen, indicating that the tourism sector is thriving despite the economic downturn.
Key Updates
05/08 07:05
Trump's tariff policy has severely impacted the confidence of Japanese businesses, yet the tourism industry has achieved its second-highest record ever, despite the challenging conditions.
In April 2025, the confidence index of Japanese companies fell to 42.7 due to new tariff policies by President Trump of the United States, hitting its lowest point since February 2023, with the manufacturing and service industries particularly affected. According to a survey by Teikoku Databank, companies are uneasy about the economic outlook. On the other hand, in March 2025, Japan's tourism industry experienced a strong recovery, attracting 3,497,600 foreign visitors, with spending reaching 2.272 trillion yen, indicating that the tourism sector is thriving despite the economic downturn.
Trump's Tariff Policy Causes Decline in Business Confidence in Japan
According to the survey results released by Japan's largest credit research agency, Teikoku Databank (TDB), on May 7, 2025, Japan's Business Sentiment Index (DI) for April 2025 fell to 42.7, a decrease of 0.8 points from the previous month. This marks the third deterioration in four months and the lowest level since February 2023. The index has been below the 50-point threshold, which indicates the boundary between economic expansion and contraction, for 85 consecutive months, indicating a continued lack of business confidence.
TDB pointed out that the main reason for the deterioration in business confidence is the new round of tariffs announced by U.S. President Trump in early April 2025. According to a report by Livewire Markets, the U.S. imposed a 24% tariff on Japanese exports and set a global benchmark tariff of 10%, while China was subjected to retaliatory tariffs as high as 145%. These measures have caused global market turmoil, directly impacting Japan's export-oriented economy.
Among the ten industries surveyed by TDB, nine saw a decline in their DI. The manufacturing sector's DI value fell by 1.1 points to 38.5, worsening for the fifth consecutive month and remaining below 40 points for three consecutive months. The service sector's DI value dropped by 0.3 points to 48.4, deteriorating for the fourth consecutive month. TDB noted that companies are generally uneasy about the future economic outlook, particularly concerned that increasing global economic uncertainty will further drag down domestic demand and exports.
The survey was conducted from April 16 to 30, 2025, targeting 26,590 Japanese companies, with 10,735 valid responses, resulting in a response rate of 40.4%.
Manufacturing Takes the Brunt, Automotive Industry Under Pressure
In specific industries, the impact on automobile manufacturers is particularly evident. According to a report by FXLeaders, Toyota Motor forecasts that its operating profit for the fiscal year 2025 (ending March 2026) will decline by 21% to 3.8 trillion yen (approximately $26 billion). The company cited Trump's tariff policy, rising raw material prices, and the appreciation of the yen as the main reasons for the expected decline in profits.
Toyota stated that to maintain competitiveness in the U.S. market, it may need to expand local production, which would increase labor costs and capital expenditures. Additionally, the company faces fierce competition from local brands in the Chinese market, further squeezing its global revenue space.
Tourism Industry Grows Against the Trend, Hotel/Hospitality Industry Confidence Remains Positive
Despite the overall low business confidence, the tourism industry is showing a strong recovery. TDB noted that the "hotel/hospitality" sector within the service industry reached a DI value of 54.8 in April, one of the few industries remaining above 50, indicating that the industry is still in an expansion phase. This performance is closely related to the surge in foreign visitors to Japan.
According to statistics released by the Japan National Tourism Organization (JNTO) on April 16, 2025, the number of foreign visitors to Japan in March 2025 reached 3,497,600, a 13.5% increase compared to the same period last year, marking the second-highest monthly record since statistics began in 1964, second only to January 2025's 3,781,200. This marks the 22nd consecutive month with visitor numbers exceeding 2 million and the 6th consecutive month surpassing 3 million.
Additionally, data released by the Japan Tourism Agency on the same day showed that foreign visitor spending in Japan for the first quarter of 2025 (January to March) reached 2.272 trillion yen, a 28.4% increase compared to the same period last year, marking the second-highest quarterly record since statistics began in 2010, second only to the fourth quarter of 2024's 2.3108 trillion yen. This marks the 9th consecutive quarter with foreign visitor spending exceeding 1 trillion yen.
Tourism Boom Supports Local Economies
The tourism boom not only boosts the hotel industry but also positively impacts local economies. For example, in Kyoto, according to a report by Daily Passport, the city received 36.9 million foreign visitors in 2024, a significant increase from 25 million in 2023. Popular attractions such as Gion and Arashiyama are crowded, driving revenue in local dining, retail, and transportation industries.
However, the tourism boom also brings challenges. The Kyoto city government has implemented several measures to address over-tourism issues, including banning tourists from entering certain private alleyways and planning to increase accommodation taxes to mitigate the impact on local residents' lives.
