“ Major cities in Japan are the great beneficiary of Abenomics ,” says Tomohiko Sawayanagi , managing director , Japan , at JLL ’ s hotels and hospitality group , referring to Prime Minister Shinzō Abe ’ s plan , which lowered interest rates into the negative and softened the value of the yen . Inbound visitors hit a record last year , when the yen ’ s depreciation offset a rise in ADR . This year , the yen is rising along with ADR . “ Japan ’ s hotel market

is still healthy , but it ’ s taking a break for now ,” he says .

The government met , five years early , a goal of attracting 20 million tourists by 2020 ; it since doubled the goal . But hotel development is stymied by high construction costs and competition from office and residential developers , Sawayanagi says . As Tokyo ’ s 2020 Summer Olympics looms , developers aren ’ t rushing to build , even with incentives such as lowered restrictions on on hostels and on hotel floor area ratios .

“ We are always evaluating opportunities , but given increasing construction costs and

competition , now is not the right time for us to expand our Tokyo offerings ,” says Akira Segawa , president and CEO of Fujita Kanko , a publically traded management company . Fujita Kanko hotels in Hakone , Kyoto and Kisarazu are scheduled to open in the next two years . Segawa sees a shortage of luxury hotels in Tokyo , “ but given the limited time frame of the Olympics , I think overall demand will be met by an increase in private guest houses .”

Limited , indeed : According to JLL , the number of luxury and upscale keys in Tokyo in 2015 was 16,564 , compared with 16,793

in 2007 . Occupancy slipped six percentage points , to 75.6 %, in August 2016 over the year-earlier period as ADR remained flat at nearly 50,000 yen ( US $ 476.69 ). Leisure travelers are coming mainly from China , Korea , Taiwan and Hong Kong , Sawayanagi says .

RetuRn to tRadition To maximize profits , hotel companies will leverage existing partnerships and business models , says Akira Segawa , president and CEO of Fujita Kanko , a publically traded management company that leases 52 hotels in Japan including Washington and

Gracery brands and Japanese-style inns .

But he sees heavy price competition hobbling Japan ’ s promise as a travel destination . His goal ? “ Start focusing on providing increased value and high levels of service to our guests while still aiming to improve profitability .” With a shift by inbound tourism from shopping to experiential activities , “ lodging in old or historic houses and buildings is becoming increasingly popular ,” Segawa says . Or , he says , in ryokan , the inns , usually family-run , that offer hot spring baths and traditional Japanese aesthetics and hospitality – the type of hotels