COVID-19 Impacts - Japan (April 11)

Part
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Part
01

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.

Helpful Findings

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."

Research Strategy

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.
Part
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Part
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COVID-19 Impacts on Film and Movie Theaters - Japan

The COVID-19 pandemic continues to impact Japan's film and movie theaters. Theater closures have increased as a result of the newly-announced state of emergency. Events such as film festivals are being postponed or moved online. In addition, some in the industry are beginning to plan and act to preserve their businesses despite the temporary closures and plan for rebuilding after the pandemic.

Theater Closures

  • Japanese prime minister Shinzo Abe announced a month-long state of emergency that began on April 7. The order affects the prefectures of Tokyo, Osaka, Kanagawa, Saitama, Chiba, Hyogo, and Fukuoka, which make up around half of the Japanese economy. The order requests the closure of non-essential businesses such as movie theaters although there are no penalties for violations. In addition, although Abe issued guidelines, local officials are charged with the implementation as they see fit in their jurisdictions.
  • Among other measures, the governor of Tokyo requested movie theaters to close as of April 11. Kanagawa and Saitama, which border Tokyo, intend to follow the same restrictions.
  • Toho Cinemas, one of Japan's largest chains, announced that its locations in the seven prefectures affected by the prime minister's announcement would be closed from April 8 until further notice.

Postponement of Events or Changes of Format

  • The Food Film Festival, which was scheduled for April 17-19 in Tokyo, has been postponed indefinitely.
  • The Nippon Connection Japanese film festival, originally scheduled for June 9-14, will be held online.

Plans for Surviving and Rebuilding After the COVID-19 Pandemic

  • Several small movie theaters in and around Osaka, Kyoto, and Kobe have started selling t-shirts as a way to make money during the COVID-19 outbreak. The theaters received order for 2,700 shirts the first day, which was nine times more than their target.
  • The president of the Toho cinema chain was scheduled to give the keynote address at CinemaCon (an annual exhibitor conference), but he released the speech on YouTube due to cancellation of the conference because of the COVID-19 pandemic. He outlined some initiatives intended to help the industry recover after the crisis, including data-driven digital marketing and partnerships among studios, distributors, and technology companies.
Part
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Part
03

COVID-19 Impacts on TV, Music, and Live Events - Japan


The death of Ken Shimura, the cancellation of several live events and the ban on nightlife activities are examples of impacts/changes in the television, music, and live event segments of the entertainment industry in Japan as a result of the COVID-19 pandemic. Ken Shimura was a TV celebrity in Japan and died from COVID-19 on March 30, 2020. The cancellation of key cultural festivals will reduce Japan's revenue from such events to less than $3.7 billion.

Japan's TV Celebrity Dies of COVID-19

Nightlife Activities

Cancellation of Live Events

Part
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Part
04

COVID-19 Impacts on Automotive - Japan

The automobile industry in Japan is experiencing significant sales decline as a result of the coronavirus (COVID-19) pandemic. "Japan's new[-]vehicle market" is one of the segments in the automotive industry facing the negative impacts of COVID-19. Japan's automakers, including Nissan, and Toyota have shut down automobile production facilities or cut production quantities as a consequence of the COVID-19 pandemic. Governors across Japan have stopped nonessential businesses from operating due to the COVID-19 pandemic. Japan had about 6,005 cases of coronavirus infections, and 99 people have already died.

Continuous Sales Decline

  • Automakers experienced significant sales declines across Japan in February due to the spread of the novel coronavirus. According to the Japan Times, the sluggish sales witnessed in the auto sector is as a result of "the coronavirus outbreak."
  • The novel coronavirus outbreak is creating some adverse "effects on car buying," and is causing automakers like Nissan to transform into "much smaller" automakers.
  • Sales decline witnessed across the automotive industry has also affected "Japan's new[-]vehicle market." The Japanese Automobile Manufacturers Association reveals that the new vehicle market has "continued to shrink" and, as of March 2020, had recorded a sales decline of about 9.2% at a sales volume of 581,438 units. This drop is significant when compared to the 640,813 units of new cars sold in March 2019 (one year earlier).
  • On April 10, 2020, CNET reported through a CBS Interactive report that the Japanese automaker Nissan is likely to experience sales declines by 1 million cars from its yearly sales target up till 2023, leading to substantial adverse effects for the company.
  • At least eight major automakers in Japan have already recorded lower sales. Five has experienced double-digit sales decrease, Mitsubishi Motors Corporation has suffered a plunge in sales by 24.5%, while Nissan has encountered a sales decline of 13.8%. The sales volume of Toyota (the industry leader) recently fell by 7%.

Declining Production Volume or Factory Closures

  • As of April 11, 2020, automotive production allover Japan had virtually come to a halt. Honda, Toyota, Nissan, Mitsubishi, Subaru, and Mazda have all temporarily suspended their production lines in response to "supply chain problems" as they are trying to pare inventories due to the impact of COVID-19.
  • In April, Mitsibushi disclosed that it would be temporarily suspending production across three plants in Japan due to the impact "of COVID-19 coronavirus."
  • In April 2020, Toyota also revealed that it was halting production across five of its plants in Japan. This move was in response to sharp declines in demand as a result of the global coronavirus (COVID19) pandemic.
  • At least seven production lines across five domestic plants in Japan belonging to Japan's biggest automaker (Toyota) shut down in April following the adverse effect of the coronavirus pandemic. Toyota's halt in production will cut vehicle production across Japan by about 36,000 units.
  • Toyota's Miyata auto manufacturing plant located in Fukuoka Prefecture has suspended production until April 15. All operations have stopped at Toyota's Tsutsumi as well as Tahara plants located in Aichi Prefecture. A few operations would remain idle at its Toyota's Takaoka plant, and the Hamura factory (being run by Toyota's subsidiary known as Hino Motors Limited) in Tokyo.
  • Reuters estimates that Nissan may experience something equivalent to "closing three to four" of its production plants and may experience adverse ripple effects till 2023.

Declining Profits and Number of Customer Visits

  • The spread of the novel coronavirus recently dented consumer sentiments and reduced the number of foreigners patronizing automakers and other industrial sectors in Japan.
  • The number of customers patronizing dealers in the Japanese auto industry through physical visits has significantly dropped. Many people are refraining from going out due to growing fears relative to COVID-19.
  • Several factors, as identified above, may lead to a reduction in profits among Japanese automakers. Expert analysis reveals that "seven Japanese automakers" may experience a decline of 22% in their yearly profits. This insight is according to a CNBC report published on March 31, 2020, and credited to Goldman Sachs.
  • Nissan (a Japanese automaker) may be one of the automobile companies to feel the worst impact from the coronavirus pandemic. Its operating profit for the fiscal year 2021 may experience a slash by 92%.

Downsizing, Staff Lay-Offs, and Worker Redundancy

  • Expert analysis indicates that to cope with the effect of the COVID-19 pandemic, at a minimum, Nissan would be downsizing its workforce. Nissan is likely to lay off "thousands of workers" as part of another plan to reduce its workforce. The company has already slashed its workforce by 10% in a previous move.
  • Sources privileged to hear ongoing discussions within the top hierarchy of Nissan's management reveal that Nissan is readying to effect "big changes to its operations."
  • Toyoda (Toyota's chief executive) acknowledges that the biggest threat facing the auto industry relates to "the potential loss" of its skilled workers.
  • The chief executive of Toyota also acknowledges that Japanese automakers comprising Nissan, and Honda, as well as parts makers, are already setting up a special fund to assist their staff members affected by lay-offs so that they can find jobs.
  • A Japanese automaker (Toyota) has already recommended that its plant workers commence or embark on paid holidays following the outbreak of the COVID-10 pandemic. However, those who choose to work will have to come up with ideas necessary to improve their production efficiency.

Diversification, Cost innovation among Other Strategies

  • The Japanese auto industry has declared its readiness to help in fighting the coronavirus pandemic through the production of ventilators. The heads of four industrial groups recently revealed that they will help in the production of respirators and would also offer financial support to parts makers.
  • Toyota's president (Toyoda Akio), who is the head of the Japan Automobile Manufacturers Association, recently revealed the decision of the Japanese auto industry to manufacture essential items like ventilators needed to fight the COVID-19 pandemic. This revelation was made via a joint news conference held with three other industry group leaders.
  • A Japanese car manufacturing company (Nissan) is one of the firms answering "calls from governments" to help in the production of more ventilators and face masks to assist in combating the coronavirus pandemic.
  • Auto groups in Japan recently said they would start producing face masks for their workers to reduce the shortage of face masks. The Japanese auto industry is also considering the use of "3,000 rooms at company dormitories" as well as recreational facilities as treatment facilities for patients that display mild symptoms of coronavirus infection.
  • Leaders within Japan's automotive industry hope to encourage individuals to work together in tackling the challenges presented by COVID-19. They believe that "if that happens," they could build a faster and more reliable movement to combat the pandemic. They think that working together is essential at this critical time of crisis.
  • Japan's automotive industry groups disclose that they also have a plan to raise a special fund to assist struggling parts makers as well as other enterprises that may be in need to stay afloat following the negative impact of COVID-19.
  • Toyota has plans to produce between 500 to 600 injection-molded as well as "3D-printed medical face shields" every week from its Teiho machinery-production plant. The company is also advising medical equipment makers with relevant information needed to increase their output for the ventilator line of products and other vital items. It plans to help such companies use some efficiency concepts implemented by its production system.
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Part
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COVID-19 Impacts on Travel and Hotels - Japan

There are many impacts/changes in the travel and hotel industry in Japan as a result of the COVID-19 pandemic. Three examples of impacts/changes include a decline in travel by Chinese tourists, shifts in hotel offerings, and job loss.

Decline in Travel by Chinese Tourists

  • The number of Chinese tourists traveling to Japan has been increasing over the past years. In 2019, one-third of visitors who traveled to Japan were Chinese. Spending by Chinese tourists amounted to 36.8% of total visitor spending.
  • China serves as the epicenter of the COVID-19 outbreak, which resulted in restricted travel bans, keeping Chinese tourists from visiting Japan. The impact of the decline in Chinese tourists visiting Japan has resulted in around 90,000 hotel cancellations in Mt. Fuji and a loss of 1 years worth of revenue for Japan's most lucrative travel agent.

Shift in Hotel Offerings

  • Hotel bookings in Japan dropped by 90% in March and April 2020 due to the virus. To sustain business and to continue to bring in revenue, hotels have shifted their strategies to attract clients.
  • Traditional Japanese style inns are offering their space designed to make guests feel like great authors where they can work or simply be alone. It is not permitted to leave the premises of the inn unless there is an emergency. This shift in strategy resulted in sold out bookings in the month of March.
  • One hotel is offering two of their floors free of charge to high school students needing a place to study and are not able to study at home. Around 160 students have utilized the hotel's space to study since March 5th, 2020.
  • Another hotel chain is attracting guests by offering single rooms for remote workers to be able to focus and complete important phone calls or work of a sensitive nature.

Job Loss

  • The number of tourists visiting Japan has decreased by 58% in 2020 due to the virus, which is the second highest decline recorded in history. The steep decline has had a ripple effect on businesses in the travel and hotel industry that are unable to sustain their revenue flow and rely on visitor demand.
  • As a result of the steep decline in visitors to Japan, a total of 1,021 workers are expected to lose their jobs, with the majority of the workers operating in the hotel industry. There has been an increase in job applicants within the tourism and hotel sectors.

Research Strategy

To determine the impacts or changes, we used data describing how dependent Japan is on tourism from Chinese visitors, the amount of lost business for hotels (an indication that a change of strategy is needed), and the severity of the percentage decrease in visitors to Japan. We determined the impact or potential impact based on results from these changes. We focused on the decline in tourism and travel since the outbreak and observed concrete examples of changes in hotel offerings due to canceled bookings. Additionally, we examined any results from the respective changes in offerings and reviewed data on the expected job losses and increase in job seekers, which can be indirectly connected to the high decline in visitors to Japan.


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COVID-19 Impacts on Finance - Japan

COVID-19 has impacted Japan in many areas, including Finance. Four examples of changes in Japan's finance industry as a result of the pandemic are budget deficit, stock market fall, increase in ETF purchases, and drop in national revenue and business investment.

Key Findings

Budget Deficit

  • According to the Japan Finance Ministry, the COVID-19 pandemic has a direct impact on the country's economic challenges. In an attempt to control the spread of the disease, the policymakers have come up with measures.
  • Such initiatives involve additional spending. The Japanese government may use ¥270 billion in contingency funding.
  • High public spending creates inflation and makes the economy even weaker.

Stock Market Fall

Increase in ETF Purchases

  • The Bank of Japan (BOJ) has decided to boost its purchase of extra-traded fund (ETF) in preparation for the global recession caused by the COVID-19 pandemic.
  • The bank usually buys a maximum of ¥6 trillion per year, but due to the crisis, it decided to double its annual capacity.
  • For BOJ, it is a necessary course of action that will support the financial markets to control the economic slowdown induced by the outbreak.

Drop in National Revenue and Business Investments

  • The COVID-19 pandemic has negatively impacted business investments. As a result, the economic growth rate has plummeted from 0.6% to 0.2% in 2020.
  • Since enterprises delay investments, Japan's national revenue is severely affected. In addition, the inactivity in many business sectors like tourism, automobile, and retail takes a toll on the country's financial gain.
  • Approximately 70% of Japanese companies reported a decline in revenue since the outbreak of the disease.


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Part
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COVID-19 Impacts on QSR - Japan

The quick service restaurant (QSR) industry in Japan has not faced such detrimental impacts as a result of the COVID-19 pandemic as other countries. However, the sector has still been affected and as a consequence has faced falls in revenue, forced store closures and the execution of additional work for hygiene purposes. These impacts are described below.

IMPACT ON SALES

  • A United States Department of Agriculture (USDA) report reports that the fast-food restaurant sector in Japan, including pizza deliveries and take-out sushi shops, experienced nearly a ten percent sales increase in February. However, amongst major chains of this restaurant type, they lost half of their expected sales for March. This sharp decline is expected to continue by many restaurant executives.
  • On 6 April 2020, McDonald's Japan reported its first decrease in monthly same-store sales since November 2015 amid the coronavirus outbreak. The fast-food chain operator saw sales in March fall 0.1% from 2019, as the volume of customers dropped 7.7% due to COVID-19 preventative measures.
  • McDonald's delivery services and store use by families performed well during this period, and despite reduced numbers of customers, the impact was mitigated by the average spend per customer rising 8.3%

LOCATION CLOSURES

  • The USDA report also revealed that one restaurant operator with almost 1,000 outlets had closed 65 percent of its outlets in metropolitan areas due to parent facility or shopping mall closures.
  • A news article from 17 March 2020 stated that whilst McDonald's had been forced into closing some stores in Japan the majority of its locations remained open.
  • On 2 April 2020, Torikizoku, a yakitori-style izakaya chain restaurant, announced that they were closing all 394 of their stores in Japan from 4-13 April 2020.
  • KFC has announced reduced opening hours at its locations in Tokyo, Saitama, Chiba, Kanagawa, Osaka, Hyogo, and Fukuoka. Restaurants in these areas will now close at 20:00 until 6 May 2020. The press release also intimated that this situation could change at short notice with further restrictions.
  • Domino's temporarily closed its Fukai and Senboku Iwamuro Nishi locations in Osaka after an employee tested positive on COVID-19. However, the chain reopened both stores on 5 April 2020 using staff from other outlets who had not been in contact with the affected employees.
  • The KFC Osaka Dome outlet has been closed since 27 February 2020 due to local government policy.

COVID-19 TRANSMISSION PREVENTATIVE MEASURES

  • Pizza Hut's employees are required to wash their hands regularly, wear a mask and are also subject to body temperature checks using a thermometer to detect infection.
  • Following the diagnosing of an employee with COVID-19 at several stores in Osaka, Domino's, in conjunction with the Japanese health department, disinfected the stores and the delivery vehicles affected. In addition, other staff members who came into contact with the infected person were removed from working duties to self-isolate at home. An assessment of possible employee-customer contact was also carried out.
  • The KFC Osaka Dome outlet has undertaken disinfection work following instructions from the health department. Following the diagnosis of an employee of the store with COVID-19 in April, KFC announced that they would continue to take necessary measures to prevent the spread of infection based on the policies and action plans of the government.
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Part
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COVID-19 Impacts on Retail - Japan

Impacts and changes for the retail industry in Japan due to the coronavirus include major profit losses, (partly due to a loss in tourism from travel bans) entire cities shutting down on lockdown, and a shift to online retail that may transform Japan's once lacking e-commerce market.

Major Losses Predicted

  • A survey in March 2020 found that nearly 61% of retail businesses stated that they have experienced an impact from the coronavirus pandemic on their business activities. Altogether, including those companies foreseeing an impact on business in the near future, over 95% of the companies will be affected by the coronavirus.
  • Nationwide throughout Japan retail, dining, and leisure businesses are taking major losses, with a fall of over 2 trillion yen ($18 billion) in household consumption predicted by economists.

Lack of Tourism

  • Four major department store operators had their sales fall in the month of February, with losses in tax-free sales from a lack of foreign tourists visiting stores. Isetan Mitsukoshi Holdings Ltd. saw a fall of 13.6%, while the operator of the Daimaru and Matsuzakaya department stores, J. Front Retailing Co., saw losses equal to 21.4% from the year before.
  • In Tokyo's Ginza upscale shopping district, Matsuya Co.'s department store said sales from Feb. 1st to the 26th fell 30% compared to a year earlier, with the number of shoppers declining each day, in large part due to sharp falls in the number of Chinese tourists coming to Japan because of the travel ban ordered by Beijing.

City Shut Downs Impacting Retail

  • Japanese law does not mandate penalties for those who refuse to stay home or even for businesses that stay open, though Tokyo Governor Koike stated in March the capital could have full “lockdown if infections continued to rise.
  • Governor Koike stated that all businesses that met requests to close would receive anywhere between 500,000 yen ($4,595) and 1 million yen directly from a metropolitan government fund.

Shift to Online Retail

  • Though online retail in other major global markets such as the United States and China saw great growth due to the virus (and consumers buying essentials such as clothes, gadgets and other items) Japan has so far not had as severe of shutdowns as other nations, with e-commerce sales already among the lowest of developed markets at 7% of all transactions in 2018.
  • Japan’s government is now urging businesses and consumers to stay home in efforts to contain the virus, and thus shoppers may finally embrace online retail and see "the merits of e-commerce," according to Takeshi Mori, a researcher at Nomura Research Institute.
Sources
Sources

From Part 01
Quotes
  • "people (=consumers) staying at home leads to a slowdown in consumption activities. For certain types of services, contact with staff or other customers is inevitable. A typical example is entertainment such as watching sports events or going to the movies. Firms that provide such services are diverse and, in terms of conventional categories, belong to industries such as hotels and leisure, transportation, retail, and so on. I will refer to these services collectively as face-to-face (F2F) industries."
  • "The coronavirus shock is both a supply and a demand shock, but knowing which of these is more salient is a key issue for understanding how the coronavirus affects the economy."
  • "how credit card spending in the first half of March differed from the second half of January, just before the coronavirus shock. In services, travel spending has fallen substantially by 57% compared to the second half of January, while spending on most other services such as eating out and transportation has also declined. Thus, spending on F2F industries has dropped sharply. An important thing to highlight is that the decline in spending in F2F industries is mainly due to a decline in the number of consumers spending on those services (i.e. the extensive margin) rather than due to a decline in the average of spending on those services per person (i.e. the intensive margin). Turning to spending on goods, on the other hand, spending at supermarkets has increased significantly, reflecting stockpiling."
  • "Stockpiling of goods. Purchases at supermarkets surged on 24 February, reaching a year-on-year rate of increase of 20% at the beginning of March. After that, stockpiling came to an end, the rate of change decreased and has fallen back to more or less 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. Supermarket prices also started to rise at about the same time as sales. The year-on-year inflation rate was about 0.9% before the coronavirus shock, but as the frequency of bargain sales and discounts decreased, it increased, reaching 1.4% at the beginning of March."
  • "both sales and inflation first increased and then decreased in a pattern similar to the current episode. The time it took for sales to normalise was three weeks in the wake of the earthquake, and it looks like the time for sales to normalise this time around is about the same. Moreover, not only are the patterns of fluctuations similar, the items people purchased are also very similar."
  • "Declining inflation expectations The reason for the stockpiling is that although the probability may be very low, there is an expectation that the coronavirus will lead to the disruption of production in the future. In this sense, the stockpiling of goods and the accompanying rise in prices suggest that people anticipated a supply shock."
  • "Forecasts for GDP growth show a significant drop from forecasts in February and signal that negative growth is expected. More importantly, the inflation forecasts are slightly lower than in February 2020. Similar trends can be seen in the US and the euro area. Further, looking at inflation expectations from bond market data (the breakeven inflation rate), these have fallen by more than 1 percentage point, indicating a marked decline in inflation expectations. On the other hand, the sharp decline in demand for F2F industries has pushed down the prices of these services, and the anticipation that this will continue in the future has given rise to expectations that consumer prices as a whole will fall."
  • "the main cause of the crisis is the decrease in demand for the F2F industries caused by concerns about the risk of coronavirus infection. Therefore, once such concerns disappear, the decline in demand should disappear, and the F2F industries should rebound. However, the stock market does not seem to anticipate such a V-shaped recovery."
  • "This raises the question how a transient public health crisis can lead to a prolonged economic crisis. I present two possible scenarios. The first is one in which the health crisis triggered by coronavirus infections develops into a financial crisis. 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. The second is that demand might not return to the F2F industries once the pandemic has ended. 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."
Quotes
  • "April 6., 2020. Prime Minister Abe today announced that he was placing seven regions of Japan, Tokyo and its neighboring prefectures of Saitama, Kanagawa, and Chiba, as well as Osaka, Hyogo, and Fukuoka under a state of emergency to cope with the accelerating spread of COVID-19 cases. For the early months of the epidemic, Japan’s numbers remained remarkably low, aligning more with Singapore, South Korea and Taiwan than with Europe and the United States. But recent rising numbers of confirmed coronavirus cases prompted Abe to take a different tack. "
  • "By the end of 2019, Japan’s economy was sluggish as a result of the new consumption tax hike, with an annual real growth rate of 0.7 percent and a 1.8 percent contraction in the fourth quarter. The initial impact of the pandemic was largely felt 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."
  • "The longer-term impact of the corona virus could be especially difficult for a deeply globalized Japan. The sluggishness of Japan’s economic growth makes it difficult to imagine an easy or quick recovery should the global economic recovery be weak. The stimulus package under consideration will deepen Japan’s national debt, already at least twice the size of the national economy. "
  • "coping at home with the social and economic consequences of Japan’s aging population will become much harder in the face of the corona virus. While universal health care provides a sound foundation for managing the disease, insufficient health care facilities and personnel have already been targeted for an overhaul, especially in an around Tokyo."
Quotes
  • "April 4, 2020. The coronavirus outbreak comes just as the Japanese economy, which has limped along since the bursting of a government-induced financial bubble in the early 1990s, is showing signs of giving up the ghost altogether. An article in the Sankei Shimbun newspaper (a conservative financial daily) from Friday, March 27, reveals that the Japanese government's carefully worded monthly economic report for March does not contain the key term kaifuku (“recovery”). This is the first time the word has been missing from the monthly report in almost seven years. If Koike shuts down Tokyo, which comprises an economy larger than that of many countries, it would throw the Japanese economy into disarray and produce many negative repercussions across this region and the world."
  • "Abe attempted to pull off what no government anywhere has ever succeeded in doing: spend its way out of a recession. After assuming the prime minister mantle for the second time eight years ago, Abe tapped Kuroda Haruhiko to head the Bank of Japan and together they flooded the Japanese economy with fiat currency. This sent the yen plummeting against the dollar, and whatever domestic gains were obtained against the rising cost of imports were offset by the consumption tax increases that were the inevitable result of reckless quantitative easing. Recently, the consumption tax was raised again, to 10 percent from 8 percent, right before the coronavirus hit. Japanese exports also continue to struggle, as competition in top-end electronics from South Korea and Taiwan cuts into Japan’s brand share overseas. As a last resort, Abe had been courting tourists from China and South Korea and even went so far as to invite Xi Jinping, the Chinese dictator widely reviled in Japan as a buffoonish despot, as a state guest. There are hardly any Chinese or South Korean tourists in Japan now, and whatever hopes Abe might have pinned on a warming relationship with China (and with the pro-China leader of South Korea President Moon Jae-in) now seem irreparably dashed."
  • "the real story, the real historical change, is probably economic. Abenomics seems to be dead. Prime Minister Abe’s career may be over, as it will be very difficult for him to avoid association with Xi Jinping. QE is failing here, just as it always will everywhere. A reliance on tourism and consumption cannot conceal the structural problems with the economy overall. Public debt is increasing, and taxes keep going up. Two lost decades are shading into three. Something else will have to be tried, because Keynesianism is spectacularly not working. (You have to give the Keynesians credit (no pun intended)—like coronavirus, they never die.)"
Quotes
  • "The COVID-19 global pandemic threatens further contractions to Japan’s GDP, which was already on the downward slope prior to the crisis. Revised figures from the October-December quarter in 2019 shows an annualized 7.1% contraction after the unpopular sales tax hike and unexpected disasters. "
  • "The economy has not recovered and pressure from Covid-19 may cause further contractions which would be worsened by a prolonged epidemic. At present, there are high levels of uncertainty regarding defense spending forecast as Japan is still in the early stages of mitigating Covid-19. GlobalData presents three projections of possible defense budgets for Japan: Pre-Covid-19, GDP Percentage Status Quo and Austerity scenarios. These scenarios act as base trends, demonstrating the impact on spending as the Japanese government enacts policies to rejuvenate the economy. "
  • "Japan stays committed to government spending as the economic downturn brings with it the possibility of recession. The impact of COVID-19 is largely dependent on the duration of its spread, particularly whether effects can be mitigated earlier or later. Long-term effects to the defense supply chain will inevitably delay production and government expenditure for 2021 may focus more on stimulating the economy to keep markets out of recession."
  • "Japan was anticipating a GDP boost due to the 2020 Olympics to recovery from a contracting economy still reeling from the effects of previous shocks including factors such as natural disasters, the 2019 consumption tax hike and the effects of the US-China trade war. "
  • "The status-quo scenario keeps the same percentage of GDP allocated to defense as the Pre-Covid-19 scenario but takes into account a 2.89% contraction of GDP for FY2020, as now forecasted by GlobalData. Expenditure will slowly increase as GDP recovers from Covid-19 effects through persistent fiscal stimulus measures. It also assumes that Covid-19 will have a short-term impact before economic recovery. In the status-quo scenario, the rate of recovery is expected to be slow. It is set to be the primary trend and most probable scenario, as fiscal measures are currently being prepared by Japanese central banks and the government to reroute the economy from the downturn. The status-quo scenario shows a slow upward trend of recovery and a slower rate of growth for defense budgets across the 2020-2024 period. "
  • "The austerity scenario also includes an immediate 2.89% contraction of GDP for FY2020. GDP and expenditure recovery is projected to be on the downward trend than the status-quo scenario as Covid-19 becomes a drawn-out pandemic. This would require investments in the long-run, potentially redirecting resources from the defense budget. Complete austerity remains unlikely as the Bank of Japan and the Abe administration will deploy stimulus packages to mitigate the impact of Covid-19."
  • "For the imminent future, economic recovery in the wake of Covid-19 will be paramount. The Abe government’s strong commitment to raising defense spending in its term as incumbent government is most likely to continue in the wake of the pandemic, although the rate of increase may slow down. Major decreases will be unlikely in the current FY, as the Abe administration will continue to be at the helm of the government, where the next major election is due for October 2021. Despite the potential of huge disruptive impact of Covid-19, Japan is unlikely to drastically cut defense spending. "
Quotes
  • "4:47 pm: April 6, 2020 Japan declares state of emergency, prepares near $1 trillion stimulus Japanese Prime Minister Shinzo Abe has declared a state of emergency to fight coronavirus infections in major population centers, and has unveiled a stimulus package worth 108 trillion yen, or $990 billion. Abe announced the state of emergency targeting the capital Tokyo and six other prefectures — accounting for about 44% of Japan’s population — for a period of about one month, Reuters reported. His cabinet will also finalize the stimulus package — which is equal to 20% of Japan’s economic output — to cushion the impact of the epidemic on the world’s third-largest economy. —"
Quotes
  • "TOKYO (Reuters) - The huge cost of the coronavirus pandemic is upending Japan’s seven-year experiment to rescue the economy from its debt timebomb, as recession fears prompt calls for “helicopter money” - unlimited spending bankrolled by the central bank. "
  • "Days after Prime Minister Shinzo Abe launched a nearly $1 trillion stimulus package to battle the pandemic’s financial fallout, some ruling party lawmakers are calling for even bigger spending. Already, the government plans to boost bond issuance to a five-year high of 147 trillion yen ($1.35 trillion), or 30% of the size of Japan’s economy, to pay for the stimulus. "
  • "But even as global governments and central banks pull out all the stops to reduce the economic fallout, Japan is a grim reminder that a debt timebomb may be inescapable. Japan could issue even more debt, as economy minister Yasutoshi Nishimura has said the latest package won’t be the last if growth remains in danger. The missed opportunity to fix Japan’s finances may squeeze spending for the younger generation and constrain the country’s options for supporting one of the world’s fastest-ageing populations. "
  • "It also marks a death knell for premier Shinzo Abe’s fiscal policy, which relied on higher tax revenue backed by strong economic growth - instead of painful spending cuts - to restore Japan’s fiscal health, analysts say. "
  • "Abe was elected in 2012 with a pledge to beat deflation through Abenomics - a mix of aggressive fiscal and monetary stimulus steps with structural reforms. The plan was to stoke the economy enough so companies reaped profits and paid more taxes. That, in turn, would let Japan reduce its huge debt burden without spending cuts. "
  • " “The current low-rate, low-inflation environment is a convenient one for huge government spending.” Now, Japan’s economy is on the cusp of recession as the pandemic hits global and domestic demand, emboldening proponents of loose fiscal policy. Some ruling party lawmakers are urging for the central bank to provide unlimited funding to the government to distribute as cash to the population. "
  • "The idea, which is gaining traction in other economies, could be particularly dangerous for Japan given its 1.13 quadrillion yen debt pile - the largest among industrialised nations. Even under current ultra-low borrowing costs, debt-servicing and social welfare costs together make up 60% of Japan’s annual spending, compared with just 5% for education. "
  • "Without huge spending backed by central bank money printing, Japan will see a spike in job losses and bankruptcies that could delay an economic recovery once the virus is contained, they argue. "
Quotes
  • "2020’s global recession will be deeper than even that seen in the global financial crisis trough of 2009 when world output contracted by 0.1%, says Scope Ratings. For more detail, see Scope’s Q2 2020 Sovereign Update: Covid-19 pandemic’s economic impact: significant risk as the world economy falls into recession. None of the world’s largest economies will escape the pandemic’s macro-economic and financial-sector impact. We forecast an economic contraction of around 6.5% for the euro area in 2020, with the steepest declines in Spain (around 8%) and Italy (around 7.5%) with Germany’s economy shrinking 5.2% and France’s by 6.3%. China grows only 4%, while the United States contracts around 3.5% and Japan’s GDP recedes 4%. "
  • "Higher borrowing rates and currency depreciation are further rating-relevant risks. Countries most exposed include: China (rated A+/Negative), Japan (A+/Stable), Italy (BBB+/Stable), Spain (A-/Stable), and Turkey (BB-/Negative)."
  • "“Our baseline forecasts reflect, moreover, the assumption that economic output among most developed economies declines sharply over Q1 and Q2 and gradually recovers starting in Q3, with the strength and durability of this recovery subject to risk in the second half of the year and depending on the country,” Barisone says."
  • "“The recovery, when it does take place, will reflect the pandemic’s longer-lasting impact on supply chains and sentiment and the impact of potential further waves of coronavirus infection, which is why we see neither a dramatic V-shaped turnaround nor a prolonged L-shaped slump,” says Barisone."
Quotes
  • "Japan is faced with the possibility of $6 billion in economic losses if the Tokyo Summer Games do not proceed as planned, now that Prime Minister Shinzo Abe and the International Olympic Committee acknowledged for the first time Monday that a postponement was on the table due to the coronavirus pandemic."
  • "If the games are delayed, the overall domestic financial loss could reach 600 billion yen to 700 billion yen ($5.42 billion to $6.32 billion), private economists estimate. The impact would apply both to the nation -- which has invested heavily in making the Olympics a national showcase -- and to companies such as Bridgestone that have poured an estimated $3 billion into sponsorships."
  • "Market observers were counting on the 2020 Olympics and Paralympics to help Japan's economy rebound from a dip prompted by the consumption tax hike in October 2019. Economic benefits were expected to spread to a wide range of sectors, from construction to service."
  • "An audit at the end of last year found that the Japanese government has spent over 1 trillion yen on infrastructure projects related to the Olympics."
Quotes
  • "The news of a delay was announced on the same day that Japan’s composite purchasing managers’ index, a reading of the pulse of the national economy, plunged to its lowest point on record, 35.8. A reading above 50 suggests the economy is growing, while the further below 50, the bigger the economic contraction. This drop was led by a collapse in the services sector – made up of areas including retail, entertainment and catering, which will be particularly exposed to the postponement of the Games."
  • "“The key question is whether small and mid-sized companies, which employ nearly 90 per cent of Japanese workers, can survive until the sporting event is held next year,” said Takeshi Minami, chief economist at the Norinchukin Research Institute, a unit of the Norinchukin Bank, the biggest agricultural cooperative in Japan."
Quotes
  • "Automakers and department store operators reported sharp sales declines in February as the spread of the new coronavirus dented consumer sentiment and drove away foreign tourists. The weak data came as analysts warned of a second consecutive quarter of contraction in January to March, with Japan on the brink of recession since the consumption tax hike in October. Sales of new automobiles, including trucks and buses, dropped 10.3 percent in February from a year earlier to 430,185 units, marking the fifth straight month of decline. The sluggish sales can be attributed to the coronavirus outbreak and lingering effects from the Oct. 1 consumption tax rate hike, the Japan Automobile Dealers Association and the Japan Light Motor Vehicle and Motorcycle Association said Monday."
  • "A Japan Ryokan & Hotel Association survey showed Monday that the number of reservations at around 400 facilities in 37 prefectures from March to May totaled 1.55 million, down 45.2 percent from the same period a year earlier. The association’s data reflect reservations made by Feb. 25, the day before Prime Minister Shinzo Abe asked organizers to cancel or postpone big events for two weeks through March 10 to prevent further spread of the virus. The request led to the closure of theme parks, stadiums and other cultural venues and tourist spots that attract large crowds."
From Part 05
From Part 07
Quotes
  • "For the fast food segment, including pizza deliveries and take-out sushi shops, there was nearly a ten percent sales increase. However, according to the interviews with major restaurant chains, restaurants reportedly lost half of their March sales, a sharp decline that many expect will continue. There has been a dramatic decrease in the number of foreign tourists to cities, and a virtual halt in local events and banquets, i.e. welcome and farewell parties. Many restaurants have begun shortening their hours and several have closed. One restaurant operator with nearly 1,000 outlets said they have closed 65 percent of their outlets in metropolitan areas due to facility/shopping mall closures. "
Quotes
  • "Tokyo, April 6 (Jiji Press)--McDonald's Holdings Co. (Japan) <2702> said Monday it posted its first decrease in monthly same-store sales since November 2015 amid the coronavirus outbreak. The fast food chain operator saw sales in March fall 0.1 pct from a year before, as the number of customers dropped 7.7 pct because people tended to stay at home more as a preventive measure against the virus. "(Sales) were affected by municipalities' stay-at-home requests and closures of commercial facilities hosting McDonald's stores," a McDonald's Japan investor relations official said. On the other hand, delivery services and store use by families fared well, thanks to emergency school closures, with average spending per customer rising 8.3 pct."
Quotes
  • "The majority of McDonald’s restaurants in Japan are open, while 95% of its locations in China are also operating."
Quotes
  • "We would like to extend our deepest sympathies to all those affected by this new coronavirus. Due to the spread of new coronavirus infection and various requests from the government and local governments, we will temporarily close all directly operated stores from April 4th to April 12th. I will. At our company, we place the highest priority on customer safety, and have worked to prevent the spread of infection so that staff working in stores can work with peace of mind. Even in such a situation, we apologize for any inconvenience and inconvenience this may cause to our stakeholders, including our customers who use the Bird Aristocrats. We would appreciate your understanding. Notice regarding temporary closure of directly managed stores to prevent the spread of new coronavirus infection"
Quotes
  • "Following the "Emergency Declaration", the business hours of stores have been changed in the target areas. Depending on the policy of each local government, there is a possibility that it will be changed in a hurry. ● Target area: Tokyo, Saitama, Chiba, Kanagawa, Osaka, Hyogo, Fukuoka (7 prefectures) ● Period: Until May 6, 2020 ● Business hours: Business up to 20:00 in principle * Though not subject to this declaration, In areas where local governments request “self-restraint”, sales will continue until 20:00."
  • "At KFC, in response to infectious diseases, in accordance with the policies of each local government, in order to improve the environment where employees can work comfortably, business hours have been changed or closed at some stores, and sales of some service menus have been discontinued I may do it. Details of each store will be announced in store announcements. Following the "Emergency Declaration", the business hours of stores have been changed in the target areas. Depending on the policy of each local government, there is a possibility that it will be changed in a hurry. "
Quotes
  • "We would like to deeply apologize to our customers for the worry and inconvenience we have caused due to one of our employees working at the Domino's Pizza Japan Fukai Store and Senboku Iwamuro Nishi Store (both in Sakai-shi, Osaka) testing positive on COVID-19. In regards to the 2 stores which are currently closed"
  • "Taking the points above into consideration and that staff arrangement has been made with employees from stores other than these stores in question, we are reopening Fukai Store and Senboku Iwamuro Nishi Store from April 5th (Sunday)."
Quotes
  • "[Pizza Hut's response to an emergency declaration] We believe that our delivery and take-out services will be an important food lifeline and will continue to provide services. We will continue to thoroughly manage employee health and store hygiene so that customers can use our products with peace of mind."
Quotes
  • "The KFC Osaka Dome Store has been closed since Thursday, February 27 due to local government policy, and has been confirmed by the public health center that there are no close contacts to other employees. The store has completed the prescribed disinfection work."
  • "On Thursday, April 9 that a part-time employee (affiliated with Kintetsu Retailing Co., Ltd.) of a Kentucky Fried Chicken (KFC) Osaka Dome Store (Nishi-ku, Osaka-shi) is infected with the new coronavirus We confirmed."
  • "take necessary measures to prevent the spread of infection based on the policies and action plans of the government and local governments."