Coronavirus and Its Impact on the Japanese Economy

By Emma Cattell

Many of us have been inundated with the alarming effects that the coronavirus pandemic has had on our global physical and mental health, wealth disparities and the environment. There has often been praise in Western media sources of Japan’s pandemic efforts for supposedly being a success story in managing the impacts of the virus on its people and its economy. Japan has kept a fairly low rate of hospitalisations due to the fact that mask-wearing was already a common practise and that the people were more compliant to government instruction. Though it is true that Japan has been quite effective in its containment compared to the situations currently in the UK and the US, it has not emerged unscathed as major income sources such as the tourism industry have been hit hard thereby pressurising an already stagnating economy. 

Despite being the world’s third largest economy and highest regional GDP per capita nation, the pandemic has punched more holes through an already weakening ‘middle class consciousness’ as more people lost their jobs, began living in temporary housing, turned to food banks and a massive increase in the number of female suicide rates. Though the virus numbers have been low, it is taking a toll on the people on a wider scale. The pandemic has exposed the usually well hidden wealth gaps and the struggling economic system of temporary and underpaid work. This contests the idea that Japan has remained stable throughout the global crisis. 

According to a report by Shigeto Nagai, Japan’s former Director General and presently Head of Japan Economics at Oxford Economics, there has been a consistent decline in people’s income and an increasing number of low-income households since the 1990s. Compared to Western countries most people who work for established companies expect a fairly linear career trajectory, with wages traditionally dictated by seniority and guaranteed lifetime employment. However, this system has become inefficient when businesses have to compete with the Chinese labour costs. Hence , there has been a significant increase in part-time workers since the 2000s. This has caused a trend in young professionals and others who usually work in fairly insecure and low paid temporary positions and with the effect of the pandemic this has only increased job instability. 

Japan fell into a recession for the first time since 2015 in the first quarter of 2020. According to Deloitte analysts of the situation, real household spending paired with the impacts of the pandemic and the tax increase has meant that spending is approximately 8% lower than it was (approximately 290,000 JPY in Q3 of 2019 and 270,000 JPY in Q3 in 2020). The number of unemployed people rose for the first time in 11 years to 1.91 million, in addition to a sharp drop in the service industry as nationwide emergencies were declared in April and then again in November. Despite the government committing to spend $3 trillion to help recover from the impact of the pandemic, the economy over the full year of 2020 shrank 4.8%, and with continued travel restrictions it does not seem hopeful for 2021. With state of emergency situations and blocks on travel during one of Japan’s most profitable and iconic seasons, sakura/cherry blossom season, tourist numbers dropped a whopping 99.9% in 2020 (2,900 foreign visitors). In attempts to alleviate some of the massive losses that this sector was suffering from, the ‘go-to travel’ campaign was promoted, offering subsidised domestic travel to all Japanese permanent residents and citizens. The campaign involved covering half of traveler’s expenses at hotels and restaurants and in some cases transportation fees as well as coupons that could be redeemed at certain local businesses. However, this promotion of travel also resulted in increased travel-associated coronavirus cases. Due to spikes in the number of cases the campaign was suspended in December of last year. Most recently the government has decided to disburse 1.14 trillion yen ($11 billion), with 880.2 billion yen being allocated to the hospitality industry. With this additional financial support, the government has now committed to a $3 trillion coronavirus related stimulus–which is roughly two-thirds of Japan’s total economy.

While the government is attempting to support the service sector, there have been triple the number of poverty consultations (centres that exist in about 900 municipalities that are supposed to provide assistance). During the April-Sept period 2019 there were 124,439 consultations yet in the same period in 2020 that number rose to 319,717 with the large number of those consultations being made by people who were in the food service industry, tourism, hospitality sectors and freelancers. The Tokyo metropolitan government even passed a supplementary budget to provide 1,000 hotel rooms per day for those who had lost their homes due to loss of income. Part time workers and those in the service industries have been hit the hardest during this time and although there have been government efforts to support those affected, part-time workers are simply facing increased job insecurity that has been exacerbated by the pandemic. For the foreign part-time workers in Japan it has been an even bigger struggle since not all can access the services provided due to language and visa constraints. 

Though some aspects of the pandemic have been beneficial to Japan’s economy such as trade exports, it has also been an opportunity to update somewhat outdated systems and has sped up digitisation efforts. However, as the Governor of the Bank of Japan stated last June, “Japan’s economy is likely to remain in a severe situation for the time being. Thereafter, as the impact of COVID-19 wanes globally in the second half of the year, Japan’s economy is likely to improve, mainly on the back of pent-up demand and the effects of macroeconomic measures.” However, as Shigeto Nagai warns in order to prevent or at least slow down the erosion of the Japanese middle class and overcome some of the restraints on the economy it is necessary to reformulate and push for more dynamic resource allocation that Japanese middle class. 

The views expressed in this article are the author’s own and may not reflect the opinions of The St Andrews Economist

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