Japan’s economy during COVID-19
Japan had been struggling with low economic growth for some time before the pandemic forced countries around the world to impose lockdowns meant to prevent the spread of the coronavirus and protect lives. Herein the impact of state of emergency declarations on the economy will be analyzed to showcase how Tokyo fared during the pandemic. How people’s lives have been impacted and finally, how the economy has changed in the past year.
First state of emergency:
Japan declared a state of emergency on 8 April 2020 for seven prefectures which were Tokyo, Kanagawa, Chiba, Saitama, Osaka, Hyogo, and Fukuoka. On 16 April 2020, Shinzo Abe’s government decided to extend the state of emergency to all the prefectures of the country.
Japanese Prime Minister Shinzo Abe rolled out a stimulus package worth 108 trillion yen ($990 billion) which is about 20 percent of the country’s economic output. The direct fiscal spending was about 39.5 trillion yen which was more than double the amount it had spent following the 2008 financial crisis. The government also planned to sold bonds worth 18 trillion yen to fund the economic package.
The state of emergency led to businesses being closed and people were ordered to stay at home and as a result, the economy was affected. Japanese economy contracted 7.8 percent on a quarter-by-quarter basis during the second quarter of 2020. Private consumption fell by 28.9 percent, public consumption contracted by 2.3 percent, fixed investment by 11 percent and exports by 56 percent.
The coronavirus induced restrictions gave a boost to digital firms for instance shares of NTT Docomo and KDDI which are in the business of providing infrastructure for telecommunications rose by more than 10 percent.
The government lifted restrictions for 39 prefectures on 14th May and on 21st May state of emergency was lifted for Osaka, Kyoto, and Hyogo prefectures. On 25th May, state of emergency for the remaining prefectures namely Hokkaido, Saitama, Chiba, Tokyo, and Kanagawa were dropped. By the end of the month, the whole nation was restrictions free, and the focus shifted to kickstarting the economy as it was able to contain the number of positive cases.
Second state of emergency:
Prime Minister Yoshihide Suga announced the second state of emergency on 7 January 2021 for Tokyo, Saitama, Chiba, and Kanagawa for one month beginning 8th January onwards. 13th January onwards, Osaka, Kyoto, Hyogo, Aichi, Gifu, Fukuoka, and Tochigi were added to the list of prefectures where the state of emergency was imposed from 14th January till 7th February. On 2nd February government announced that the emergency will continue till 7th March for 10 prefectures barring Tochigi.
On 5th March, the government announced that restrictions would continue for two more weeks for Tokyo, Chiba, Kanagawa, and Saitama prefectures. Following expert panel advice, Prime Minister Suga announced the end of restrictions on 18th March 2021.
The curbs on movement of good and people impacted the economy negatively as it contracted by 3.9 percent on year-on-year basis. Capital spending declined by 1.2 percent compared to the previous quarter, government spending fell by 1.1 percent and private consumption dropped by 1.5 percent. Net exports meaning exports minus imports reduced by 0.8 percent. Overall, the curbs had a negative impact on the economy, but since this time they were imposed regionally rather than the whole nation, the impact was not as stark as the first state of emergency.
Remote work has increased to 20 percent of the workforce but at a very slow pace for instance before the pandemic 10 percent of the people used to work from home and now the figure has doubled. However, the jump is not as stark as US where 44 percent of the workforce works from home as compared to the normal era when 17 percent used to work from home. Digitalization in terms of work has not been boosted in Japan to a large extend as Japanese employees prefer to travel to the office.
Third state of emergency:
On 23rd April 2021, the central government imposed the third state of emergency in Tokyo, Osaka, Kyoto, and Hyogo prefectures and was slated to run till 11th May. On 11th May, government announced that Fukuoka and Aichi prefectures are to be placed under the state of emergency. Two days later, on 14th May Hokkaido, Okayama, and Hiroshima were added to the list of prefectures and it was extended for two more weeks.
On 28th May, the state of emergency was extended till 20th June which was roughly one month before the Tokyo Olympics are slated to begin. On 17th June Prime Minister Suga announced that quasi emergency measures will remain in seven prefectures until 11 July barring Okayama and Hiroshima where the state of emergency will be fully lifted on 20th June as planned.
The state of emergency hurts economic recovery as the said prefectures contribute one-third of the country’s output. The real GDP and the economic growth rate would take a hit since this time around the restrictions were a bit stricter than the second emergency declaration. The island-nation is now expected to grow at about 1.7 percent due to restrictions on movements, this contrasts starkly with the projected growth of 4.7 percent made earlier.
Japan has not been able to boost digitalization as the report by IMD world digital competitiveness ranking shows where Tokyo ranks 27th. This stems from the fact that Japanese firms have utilized information and communications technology primarily for cutting costs rather than using them to revolutionize the way firms conduct operations. Even during the third state of emergency people have continued to flock to the office rather than shift to work from home as only 20 percent of the workforce has embraced digitalization.
Fourth state of emergency:
On 8th July Prime Minister Suga announced that the fourth state of emergency will be imposed in Tokyo 12 July onwards and would continue for the duration of the Olympics. Considering the cases in the prefecture reached a new high after reaching peak in mid-May a new state of emergency was imposed. On the same day Prime Minister announced that spectators will be banned from attending the Olympic games.
This would hurt the Japanese economy even more as the organisers had expected to earn about $800 million in ticket sales, all of which will be lost due to the ban. The impact would not only be limited to ticket sales as restaurants, bars and karaoke parlors serving alcohol have been asked to close, so they too would lose out as people are expected to stay at home.
The fear of Olympics being a super-spreader event and the rising infections seems to have forced the government to ban crowds and keep infections in check through emergency measures. Although the economic impact would be huge considering that the government has spent about $15.4 billion for the Olympics but protection of lives seems to be the priority here and as a result, people have been asked to stay at home.
Final Viewpoint:
Tokyo imposed the first emergency measure in late April last year after choosing not to restrict people’s movement unlike other countries. However, the state of emergency differs from a lockdown as public transit was allowed and stay at home order was largely voluntary since no one would be penalized for disobeying. The April emergency measure had a profound impact on the state of the economy, but it was able to recover after restrictions were lifted.
The second state of emergency imposed in January 2021 was not as strict and only people who lived in the said prefectures were affected. The economic impact was not as high as the first one, but it did affect the economy’s ability to recover.
Third emergency measure imposed in April this year was limited to few prefectures but was expanded and extended multiple times to bring down the number of infections. This time around the restrictions were a bit tougher since cases were higher. The economy could have grown at a faster rate if the emergency had not been imposed.
The fourth emergency announcement which is currently in place and has been imposed to avoid explosion of cases as the Olympics will be conducted during the period. The country could have surely benefitted from in person Olympics but with cases rising in Tokyo, the government was forced to ban spectators.
As far as the impact of the pandemic on people’s lives is concerned, use of credit cards, electronic money has increased and use of cash has decreased which is welcoming from the banking sector’s point of view. For instance, maintaining ATMs costs around $6.6 billion and use of digital payments is cheaper. In terms of workplace Japanese still tend to go to the office for example since the pandemic use of digital applications for work has only jumped to 20 percent from 10 percent.
End Notes
1) https://www.bbc.com/news/business-53802967
2) https://www.theguardian.com/world/2020/apr/07/japan-shinzo-abe-declares-state-of-emergency-over-coronavirus
3) https://www.focus-economics.com/countries/japan/news/gdp/q2-gdp-revised-down-marginally-in-second-estimate
4) https://home.kpmg/xx/en/home/insights/2020/04/japan-government-and-institution-measures-in-response-to-covid.html
5) https://www.schroders.com/en/insights/economics/what-the-data-tells-us-about-japans-response/
6) https://www.japantimes.co.jp/opinion/2020/04/15/commentary/japan-commentary/covid-19-pandemic-prompts-digital-revolution/
7) https://www.reuters.com/article/us-health-coronavirus-japan-idUSKBN21P067
8) https://variety.com/2021/biz/asia/japan-second-state-of-emergency-for-tokyo-1234880432/
9) https://www.garda.com/crisis24/news-alerts/451421/japan-authorities-extend-covid-19-state-of-emergency-for-tokyo-surrounding-prefectures-through-at-least-march-21-update-44
10) https://www.nippon.com/en/japan-data/h00935/
11) https://www2.deloitte.com/us/en/insights/economy/asia-pacific/japan-economic-outlook.html
12) https://www.aljazeera.com/economy/2021/6/8/japan-economy-shrinks-in-q1-but-less-than-expected
13) https://fortune.com/2021/06/13/japan-covid-work-from-home-corporate-culture/
14) https://www.npr.org/sections/coronavirus-live-updates/2021/04/23/990133421/japan-declares-3rd-state-of-emergency-3-months-ahead-of-olympics
15) https://www.timeout.com/tokyo/news/here-are-the-revised-covid-19-restrictions-in-tokyo-with-the-extended-state-of-emergency-051121
16) https://www.reuters.com/world/asia-pacific/surprise-move-japan-add-3-more-prefectures-state-emergency-2021-05-14/
17) https://www.npr.org/2021/05/28/1001243109/japan-just-extended-its-3rd-state-of-emergency-weeks-before-the-olympics-begin
18) https://www.japantimes.co.jp/news/2021/06/17/national/soe-lifting-nine-prefectures/
19) https://www.aljazeera.com/news/2021/7/8/japan-to-impose-covid-emergency-in-tokyo-mulls-fan-free-olympics
20) https://apnews.com/article/tokyo-lifestyle-health-coronavirus-pandemic-olympic-games-5fe54df9b5c06abbc54a633cbd0d907e
21) https://www.scotiabank.com/ca/en/about/economics/economics-publications/post.other-publications.international-economics.asia-pacific.japan-s-economic-outlook-2021-22--april-28--2021-.html
22) https://english.kyodonews.net/news/2021/05/3c9690fac551-focus-lingering-virus-emergency-could-lead-japan-to-double-dip-recession.html
23) https://www.reuters.com/world/asia-pacific/japan-avoid-recession-q2-growth-forecasts-cut-sharply-2021-06-15/
24) https://www.eastasiaforum.org/2021/05/31/japans-digital-drag/
25) https://www.bloomberg.com/news/articles/2021-02-18/cash-loving-japan-shifts-from-notes-and-coins-in-boost-for-banks
26) https://www.nytimes.com/2020/04/07/world/asia/japan-coronavirus-emergency.html
Pic Courtesy- Jezael Melgoza at unsplash.com
(The views expressed are those of the author and do not represent views of CESCUBE.)
