Japan’s Covid-19 state of emergency will have limited impact on the economy

SINGAPORE – Japan’s latest declaration of a state of emergency in parts of the country is not expected to have a major impact on the economy, economists told CNBC.

“The economic impact of the announced measures will be less compared to the last episode,” Shigeto Nagai, head of the Japanese economy at research firm Oxford Economics, told CNBC in an e-mail.

He was referring to Japan’s national state of emergency declared in April 2020, at the start of the coronavirus pandemic. The state of emergency ended at the time at the end of May.

This latest state of emergency in Tokyo, Saitama, Chiba and Kanagawa until February 7 was announced by Japanese Prime Minister Yoshihide Suga last week, in a bid to tackle the latest outbreak of coronavirus infections.

The state of emergency is expected to be extended to more areas, with local media reporting that Suga will add seven more prefectures, including Osaka.

Japan has recorded more than 298,000 confirmed Covid-19 infections and at least 4,192 lives have been killed by the disease, according to data from the public broadcaster NHK.

Nagai of Oxford Economics cited several factors to explain the limited economic impact, including trade restrictions which mainly target only restaurants and bars in areas under the state of emergency.

The opening hours of food and beverage establishments in these areas will be shortened, according to Suga’s announcement last week. People are also discouraged from going out after 8 p.m. for non-essential and non-urgent reasons.

The number of people going to work will also be reduced by 70% – thanks to teleworking. However, schools and kindergartens will not be closed this time.

Capital Economics’ Japanese senior economist Marcel Thieliant told CNBC: “The restrictions are very light and mainly affect restaurants and entertainment, which together account for around 3% of GDP.”

“Since the state of emergency will only last a month, the expansion in the Kansai region will not lead to a slowdown of more than 0.1% of GDP,” Thieliant said, referring to recent reports. emergency measures that would be extended. to more areas.

“We still believe the state of emergency will be extended nationwide and made more draconian, with shops and restaurants being asked to shut down completely,” he said, adding that Capital Economics expects a drop in consumption of 1.5% quarter on quarter to quarter if that happens.

The handling of the Covid-19 situation in Japan could affect the re-election chances of Suga, who took over as prime minister last year following the unexpected resignation of his predecessor Shinzo Abe for health reasons.

Nagai of Oxford Economics has warned that Suga – whose approval rating has “already dropped sharply in recent weeks” – will receive a “serious blow” if the state of emergency fails and is to be extended beyond a month.

“In addition to a series of political scandals, (Suga’s) lack of leadership in dealing with Covid-19 has come under heavy criticism,” Nagai said. “The only chance to hold an election for the lower house is in the fall after the Olympics and the (Liberal Democratic Party) might start looking for another leader to win the election.”