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A security guard wearing a face mask stands in front of a Shinkansen bullet train upon its arrival at Tokyo Station on April 25. Photo: AFP
Opinion
Eye on Asia
by Rupakjyoti Borah
Eye on Asia
by Rupakjyoti Borah

Will the coronavirus pandemic derail Japan’s economy as it extends emergency measures?

  • Not only will the restrictions on person-to-person contact shrink domestic consumer spending, but Covid-19’s impact on Japan’s trading partners will also hit exports hard
Rupakjyoti Borah
Rupakjyoti Borah
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With Japan extending its state of emergency till May 31, it seems that the country is preparing for the long haul in its fight against the coronavirus pandemic.

Initially, Prime Minister Shinzo Abe had declared a state of emergency to cover seven prefectures on April 7, extending it to the entire country on April 16, in a move to cut down on the movement of people during the “golden week” holidays.
Japan’s fight against Covid-19 got off to a slow start: the country had initially only barred the entry of Chinese nationals with passports issued in Hubei province and foreigners who had visited Hubei in the two weeks before they planned to enter Japan. Moreover, Japan’s handling of the coronavirus cases on board the Diamond Princess cruise ship, which had docked at Yokohama port, left much to be desired.
Another issue that loomed large was the 2020 Tokyo Olympics, but once the International Olympic Committee decided to postpone the games to July next year, the decks were cleared for a more robust response.

Now that this stronger response is here, what does it mean for the Japanese economy?

A study by Nikkei indicated that Japan’s economy could shrink by an annualised 21.7 per cent in the April-June quarter, its worst performance in the post-World War II period. Earlier, the government had launched a stimulus package worth nearly 108 trillion yen (US$989 billion) and equivalent to almost 20 per cent of its gross domestic product.
This package includes loans for small businesses to help them tide over the crisis. Within this package, it had also earmarked some 243.5 billion yen for Japanese production lines to move out of China to Japan and third countries.

Tokyo has also announced a cash handout of 100,000 yen for all Japanese citizens and foreign residents who are on the Basic Resident Register and hold a visa valid for more than three months.

However, it seems that even with the injection of this stimulus, the Japanese economy will be severely hit.

Pedestrians walk past a screen showing Japanese Prime Minister Shinzo Abe speaking at a televised news conference, in Shinjuku, Tokyo, on May 4. Photo: EPA-EFE

 Abe has called for an 80 per cent reduction in person-to-person contact in 13 prefectures, including Tokyo and Osaka, where “special caution” has been advised. In a country where consumer spending makes up more than half of gross domestic product, this will have a severe effect on the economy.

Other sectors that will be severely affected are exports and inbound tourism. The postponement of the Olympics, expected to boost the economy through tourism arrivals, was a heavy blow.

Some of Japan’s closest trade partners have also been badly affected by the virus outbreak. For example, two-way trade between Japan and the United States stood at US$217.6 billion in 2018. But the Covid-19 outbreak has been particularly severe in the US, which recorded the most coronavirus deaths in the world.

Unless there is significant improvement in the coronavirus picture in the wider world, Japan’s export scenario will remain glum.

Japanese carmakers have been severely impacted by falling demand globally, with their international vehicle sales plummeting by 34 per cent in March. Meanwhile, domestic car sales fell to a nine-year low in April.

A worker is seen among newly manufactured cars awaiting export at a port in Yokohama, Japan, on November 15, 2017. Photo: Reuters
The pandemic means that Japanese people may have to make some significant lifestyle changes. The practice of exchanging business cards, for example, can be a health hazard in these times. Japan will also need to move towards electronic money, which may be easier said than done in a cash-dependent nation.
In addition, Japan lacks adequate day care facilities to take care of children of working parents during school closures. Protecting the ageing population will also entail additional government expenditure in fighting the coronavirus.
What Japan can count on is the fact that it is a disciplined society, where people have long been accustomed to wearing masks. In addition, Japanese tend to avoid speaking in public areas, which may have helped slow the spread of the virus in the first place.

Japan has an uphill task on its hands, both on the health and economic fronts, as it fights the coronavirus outbreak. The million-dollar question is whether this will derail the Japanese economy.

Dr Rupakjyoti Borah is a senior research fellow with the Japan Forum for Strategic Studies, Tokyo. The views expressed here are personal

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