Following an already severely weakened consumption momentum in the wake of last October’s VAT increase and a negative overall economic growth rate of -1.8 percent (Q/Q) in the final quarter of 2019, it currently looks as if the economic crisis in Japan will now deepen and prolong significantly due to corona, before growth will probably not pick up again until the end of the year. The current mood among companies and private households is desolate and indicates that the path through the corona crisis will demand enormous effort and costs. The way back to normality will probably only be possible step by step.
The current sentiment indicators among companies, as can be seen in the results of the latest Tankan survey by the central bank and in the purchasing managers‘ indices, have fallen even further and at an accelerated rate recently. The postponement of the Summer Olympics from Tokyo to 2021 has finally taken the wind out of the sails of those who still believed that demand would soon be met.
Prime Minister Abe declared a national state of emergency for Japan on 7th April due to the recent significant increase in the number of cases of new corona diseases. People should avoid busy places and stay at home if possible. „Home office“ and „social-distancing“ are a completely new experience for many Japanese people. But anyone familiar with the completely overcrowded commuter trains in Greater Tokyo and other conurbations will quickly see that something had to be done to finally contain the corona risks more efficiently. At the same time, the measures taken in Japan so far still seem mild in comparison to those in Europe, for example, because they have so far been essentially only appeals to individual insight to avoid danger spots for infections locally and to accept the increased offers from employers to be allowed to work at home. Governors in major prefectures, including Tokyo, can now also recommend business and plant closures. However, these measures are not (yet) legally binding. So so far everything is rather a „soft lockdown“. The intention behind this is clear: the already weak Japanese economy should not be completely stifled. It is unclear how long Japan can keep this up without the calls for a tightening of the strategy against corona becoming louder.
In order to contain the corona damage, Abe has now announced at least a new fiscal package with a nominal volume of 108 trillion yen or around 20 percent of Japanese GDP. But it must be taken into account that only the smaller part of it is actually direct new government spending. After all, there are to be cash transfers of 300,000 yen to every private household. Small businesses are to receive subsistence aid. There are also to be tax deferrals and deferrals of social security contributions. Despite all these measures, the recession in Japan is likely to continue for the time being. For the year 2020 as a whole, we therefore expect GDP growth of only -3.0 percent.