Japan logged 42.7 million arrivals last year, according to the transport ministry, topping 2024's record of nearly 37 million as the weak yen boosted the appeal of the "bucket list" destination.
However, the number of tourists from China last month dropped about 45 percent from a year earlier to around 330,000.
Prime Minister Sanae Takaichi's suggestion in November that Tokyo could intervene militarily in any attack on Taiwan triggered a sharp diplomatic backlash from China, which urged its citizens to avoid travelling to Japan.
Tuesday's announcement showed the warning had impacted visitor numbers.
China has been the biggest source of tourists to the Japanese archipelago, with almost 7.5 million visitors in the first nine months of 2025 -- a quarter of all foreign tourists, according to official figures.
Attracted by a weak yen, Chinese tourists splashed out the equivalent of $3.7 billion in the third quarter.
In the wake of Beijing's travel warning, Li Benjing, an employee at a small travel agency in Tokyo targeting Chinese tourists, told AFP the firm had seen a 90 percent decline in sales.
"The impact for our business is huge," she said.
However, Transport Minister Yasushi Kaneko said it was a "significant achievement" that overall visitor numbers had topped 40 million people for the first time.
"While the number of Chinese tourists in December decreased, we attracted a sufficient number of people from many other countries and regions to offset that," he said, adding that there had been a "steep" increase in tourists from Europe, the United States and Australia.
"We also hope and want to make sure that Chinese visitors will return to us as soon as possible," he added.
The overall increase is partly due to government policies to promote attractions from Mount Fuji's majestic slopes to shrines and sushi bars in more far-flung parts of the archipelago.
The government has set an ambitious target of reaching 60 million tourists annually by 2030.
- Overtourism -
Japan's biggest travel agency JTB forecasted that overall tourist numbers this year would be "slightly lower" compared to 2025 due to a decrease in demand from China and Hong Kong.
Nevertheless, tourism income was expected to increase due to rising prices of items such as lodging and strong spending among visitors.
It added that due to an uptick in repeat visitors to Japan, the places people want to visit are shifting from large cities to rural areas.
Authorities say they want to spread sightseers more evenly around the country, as complaints of overcrowding in hotspots like Kyoto grow.
As in other global tourist magnets like Venice in Italy, there has been a growing pushback from residents in the ancient capital.
The tradition-steeped city, just a couple of hours from Tokyo on the bullet train, is famed for its kimono-clad geisha performers and increasingly crowded Buddhist temples.
Locals have complained of disrespectful tourists harassing the geisha in a frenzy for photos, as well as causing traffic congestion and littering.
Elsewhere, exasperated officials have taken steps to improve visitors, including introducing an entry fee and a daily cap on the number of hikers climbing Mount Fuji.
A barrier was briefly erected outside a convenience store in 2024 to stop people from standing in the road to photograph a view of the snow-capped volcano that had gone viral.
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