Tokyo-based travel agency Kamome has received cancellations affecting more than 20,000 customers due to the Wuhan coronavirus outbreak.
The inbound China specialist has been hit hard after China announced a ban on outbound group travel to help curb the spread of the virus.
Coronavirus has already killed more than 100 and infected nearly 5,000.
It has been inundated with refund requests from Chinese package tour customers.
Kamome also dealt with a similar situation back in 2003, during the SARS crisis, which took some time before the market fully recovered.
It is a blow for the Japan tourism industry which relies heavily on the inbound China market.
It makes up nearly a quarter of the market with 9.6 million visitors last year.
"We are concerned about the decrease in Chinese tourists, but we cannot foresee the outcome as it depends on how long the policy lasts," Japan National Tourist Organization spokeswoman, Shiho Himuro told CNN.
It is a worrying time for Japan tourism as its second largest market South Korea collapsed last year amid a damaging political dispute between the two countries.
