- Department store operator Isetan Mitsukoshi plunges 10.6%
- Beijing's travel boycott could cut Japan's GDP by 0.36%, Nomura estimates
- South Korea's Lotte Tour Development surges 8.8%
TOKYO, Nov 17 (Reuters) - Tourism-related Japanese stocks plunged on Monday after China warned its citizens against travel to its North Asian neighbour following a widening diplomatic rift over Taiwan.
Isetan Mitsukoshi, a department store operator with substantial sales to Chinese visitors, sank 10.7%, poised for its biggest drop in more than a year. Tokyo Disneyland operator Oriental Land lost 5.9% and Japan Airlines (JAL) shed 4.4%.
On Friday, Beijing warned Tokyo of a "crushing" military defeat if it used force to intervene over Taiwan and warned Chinese citizens against visiting Japan. On Monday, Japan's chief government spokesman, Minoru Kihara, said any move by China to restrict travel would violate an agreement between the nations' leaders.
Senior Japanese diplomat Masaaki Kanai will travel to China on Monday to meet counterpart Liu Jinsong in an attempt to soothe the tensions, Japanese media reported.
"The China–Japan dispute over Taiwan and Beijing's advisory discouraging travel to Japan introduces near-term headwinds for consumer-facing sectors," said Masahiko Loo, a senior fixed income strategist at State Street Investment Management in Tokyo.
"Chinese visitors account for roughly 25% of Japan's inbound traffic, making department stores, luxury retail, and hospitality particularly vulnerable," he added.
Fuelled by the weak yen, tourism has become an important part of Japan's economy. More than 650,000 tourists from China visited Japan in September, trailing only those from South Korea, according to the Japan National Tourism Organization.
Beijing's travel boycott of Japan could result in an economic loss of about 2.2 trillion yen ($14.23 billion) on an annual basis, reducing the nation's real gross domestic product by 0.36%, according to an estimate by Takahide Kiuchi, executive economist at Nomura Research Institute.
ANA Holdings, Japan's largest airline, said it would monitor the situation, adding that there had been no change so far in the reservation status of flights to and from China. Its shares slid 3.5%.
A spokesperson for Spring Japan, a low-cost subsidiary of JAL, said there had been no changes to its flight schedule, though it was receiving inquiries from customers about cancellations.
Ryohin Keikaku, operator of Muji brand stores, sank 9.4% and Fast Retailing, which has more than 900 Uniqlo stores in China, dropped 5.3%. The benchmark Nikkei stock index was down 0.4%.
Tensions between Tokyo and Beijing have flared up since Japan's newly elected Prime Minister Sanae Takaichi said on November 7 that a Chinese attack on Taiwan could amount to a "survival-threatening situation" and trigger a potential military response from Tokyo.
The spat followed a previous disagreement over Japan's decision to release wastewater from the stricken Fukushima Daiichi nuclear power plant into the sea, which for years has cast a pall over trade and tourism between the two nations.
A diplomatic rift with China could have a bigger effect on Japan than just a dent in its tourism sector, according to Alicia Garcia-Herrero, Asia-Pacific chief economist at Natixis.
"What is crucial is Japan's stubborn dependence on rare earth metals, which has decreased very marginally since Japan tried to diversify," she said.
China produces more than 90% of the world's processed rare earths and rare earth magnets, which are essential in a wide range of technologies.
Chinese companies with exposure to the Japanese market also suffered. Shares of software maker Linkage, which derives most of its sales from Japan, fell 3%.
With Asia's economic powerhouses at loggerheads, South Korea's tourism industry stands to gain. Shares of Seoul-based Lotte Tour Development surged 9.6% on Monday.
($1 = 154.6000 yen)
Reporting by Rocky Swift, Maki Shiraki, and Kaori Kaneko in Tokyo, Cynthia Kim in Seoul, and Gregor Stuart Hunter and Rae Wee in Singapore; Editing by Sonali Paul and Thomas Derpinghaus
Source: Reuters