Tourism as a Catalyst for Sustainability in Japan: Leveraging Governance Effectiveness and Financialisation to Drive a Transformational Change

ABSTRACT While tourism contributes significantly to economic growth, its environmental impacts remain concerning, particularly under varying governance and financialisation conditions. This study uses Kernel regularised least squares (KRLS)machine learning approach to investigate these relationships in Japan (1996–2020). Results indicate tourism negatively affects environmental quality by reducing the load capacity factor, while government effectiveness and financialisation independently enhance sustainability. Financialisation positively moderates the tourism‐environment relationship, whereas improved governance unexpectedly intensifies tourism's negative environmental impact. These findings highlight the importance of aligning tourism policies with financial mechanisms and calibrated governance frameworks to improve environmental outcomes.