COVID-19 Impacts - Japan
Japan's economy has not yet begun to recover from the COVID-19 pandemic. Instead, the Japanese government has instituted measures to try to save the economy from further decline, including announcing a major stimulus package, the issuance of government bonds, and a state of emergency in Tokyo. Factors that may influence the eventual recovery of the Japanese economy include the country's large debt load, its declining GDP, the postponement of the 2020 Olympics, decline in tourism and travel both into and out of Japan, grocery stockpiling, and decline in retail sales other than food.
World's Largest Government Debt Load in Japan
- Prime Minister Shinzo Abe announced a stimulus package for Japan's economy in early April 2020. The stimulus package "will deepen Japan’s national debt, already at least twice the size of the national economy", according to the Council on Foreign Relations.
- Abe also declared a state of emergency in Tokyo and six other prefectures in early April. Tokyo's economy is larger than the economies of many countries, and the shutdown will upset the Japanese economy and lead to negative repercussions.
- The Abe government plans to issue more bonds--increasing bonds to "a five-year high of 147 trillion yen ($1.35 trillion), or 30 percent of... Japan’s economy, to pay for the stimulus." The bonds will increase Japan's debt.
- Abe's party is campaigning for the central bank to provide unlimited funding to the government "to distribute as cash to the population. " This action would increase Japan's debt further. The politicians in favor of this warn that without consumer spending, Japan will see large job losses and many bankruptcies in the coming months.
- The stimulus, bond issuance, and proposal for cash distribution would occur in the context of Japan's already slow economy. "Even under current ultra-low borrowing costs, debt-servicing and social welfare costs together make up 60 percent of Japan’s annual spending, compared with just 5 percent for education."
Japan's Contracting GDP and Olympics Cancellation
- On March 25, 2020, Prime Minister Abe postponed the 2020 Olympics, scheduled to be held in Tokyo. The country was expecting a huge influx of tourists and cash that would help its economy. Now that will not happen until 2021 at the earliest.
- The COVID-19 global pandemic that forced the postponement of the Olympics will lead to further contractions of Japan’s GDP, which was already declining before the crisis. "Revised figures from the October-December quarter in 2019 shows an annualized 7.1 percent contraction after the unpopular sales tax hike and unexpected disasters. "
- Japan expected a GDP boost due to the 2020 Olympics. Japan's economy is still reeling from the effects of natural disasters, the 2019 consumption tax hike and the US-China trade war.
- Japan’s GDP is predicted to recede 4 percent for 2020.
Face-to-Face (F2F) Industries Including Travel and Tourism See Huge Decline
- One Japanese economist reported that entertainment such as watching live sports events, going to the movies, staying in hotels, other leisure activities, transportation, and retail have all experienced huge declines since the beginning of 2020. Travel spending fell by 57 percent in the first half of March compared to the second half of January. Spending on similar services such as eating out and transportation also declined in March compared to January.
- The sharp decline in demand for F2F industries in Japan reduced the prices of these services. The anticipation that this will continue for some time has led to expectations that consumer prices will fall throughout Japan in the coming months.
- "In the F2F industries, there are many firms experiencing a deterioration in business, and some of them may actually go bankrupt in the near future. Financial institutions may be affected as loans to such firm become irrecoverable."
- One Japanese economist reported, "At least part of the F2F industries were exposed to a wave of technological innovation before the coronavirus shock occurred and were headed for a decline. The credit card data show that expenditure on cinemas and theatres has been declining in recent years, and instead expenditure on online content delivery services has been on the increase. The coronavirus shock could finish off such industries and firms."
- The first signs that things were going bad in Japan due to the pandemic was seen in the tourism sector. "In January, visitors were down only by 1.1 percent year over year, but in February that dropped to 58.3 percent. On March 9, the Japanese government restricted travel from all of China and from South Korea, and on March 21 added multiple countries from Europe. By the end of March, Tokyo announced restrictions on travel from thirteen more countries, including the United States."
- Despite Prime Minister Abe's economic policies, it can be seen now that reliance on tourism and consumption cannot solve the structural problems with the Japanese economy overall.
- A survey arranged for the Japan Ryokan & Hotel Association and released March 2, 2020, showed that reservations at "400 facilities in 37 prefectures from March to May totaled 1.55 million, down 45.2 percent from the same period a year earlier."
Grocery Shopping and Stockpiling of Goods
- Supermarket purchases increased sharply on February 24, showing an annual increase of 20 percent at the beginning of March. After that time, stockpiling of goods ended, the rate of change decreased, and sales have stabilized at about the same level as before the coronavirus outbreak. "However, more recent data indicate that the rate of sales growth began picking up again on 25 March, when Tokyo Governor Yuriko Koike hinted at a lockdown of Tokyo." That lockdown occurred just a few days later.
- Japanese consumers were stockpiling because they expected that the coronavirus would lead to the disruption of production in the future. So the stockpiling of goods and the accompanying price increases suggest that people thought there would be shortages.
State of Emergency Declared in Tokyo
- On April 6, 2020, Japanese Prime Minister Shinzo Abe declared a state of emergency to fight coronavirus infections in Japan's major population centers. He announced a stimulus package worth 108 trillion yen, or $990 billion. The emergency affects Tokyo and six other prefectures, with 44 percent of Japan's population.
- Abe's cabinet will ready the stimulus package — "which is equal to 20 percent of Japan’s economic output" — to reduce the impact of the COVID-19 pandemic on Japan's economy--the world’s third-largest.
- The stimulus package will put money into the economy to counteract the reduction in consumer spending that has occurred.
Retail Sales Decline in February 2020
- Sales of cars fell in Japan in February, as did sales at department stores.
- Prime Minister Abe asked Japanese citizens to avoid large groups. This led to "the closure of theme parks, stadiums and other cultural venues and tourist spots that attract large crowds."
It was not possible to find signs that the Japanese economy was recovering from COVID-19 because according to the industry writers, bloggers, and reporters who published on the crisis, the Japanese economy has not begun to recover. In fact, one article pointed out that the Japanese government did not use the word "recovery" in its March 2020 economic report for the first time in seven years. We gathered as much information on the current state of the Japanese economy as we could find from newspapers, blogs, economic reports, global predictions, and so on. Nowhere was there any hint that experts thought that the Japanese economy was recovering. We searched for information on travel, retail, and financial industries, and for information on advertising spending. A few references to the decline of tourism was found, due to both the postponement of the Olympics and the governments ban on tourists entering Japan. A few references were found on declining retail sales in autos and department stores. Nothing was available on advertising spending, and very little was available on the financial industry.