As the coronavirus has prolonged a deep slump in Japan, one ray of hope has come from its avoidance of a crippling lockdown. But it’s unclear whether that can last. TOKYO — Even before the new coronavirus, Japan’s economy was in trouble. Exports were plummeting on slowing demand from China, and a tax increase at home was keeping shoppers out of stores.
The numbers were stark: Economic output contracted 7. 1 percent in the last quarter of 2019. With the coronavirus pandemic, a country that had already looked set to open this year with one of the worst performances among the world’s major economies is bracing for a tremendous blow. Trade has slowed to a crawl as other leading nations come to virtual standstills to curb the virus.
Tourism has nearly evaporated, with bankruptcies starting to pop up among hotels, restaurants and tour operators. Large sports and cultural events have been canceled, and postponing the Tokyo Olympics to 2021 will require a dizzying amount of money and time, while delaying an expected economic boost. The situation is so dire that even Japan’s unwaveringly optimistic officials now express worry about the country’s growth, saying the economy — the world’s third largest after the United States and China — is facing “severe circumstances” because of the pandemic. Desperate to get through the storm, the government has passed several stimulus measures, and Prime Minister Shinzo Abe pledged over the weekend that Japan would soon approve the largest package in its history.
He said it would exceed the 56. 8 trillion yen, or $530 billion, that the country spent to mitigate the damage from the 2008 financial crisis. Mr. Abe’s announcement followed the passage of a $2 trillion intervention in the United States.
Japan’s one ray of light has been that it has not yet instituted the kinds of lockdowns that have halted economic life in parts of China, Europe and the United States. Salarymen are still commuting to the office, and teenagers are still buying streetwear in Harajuku, as the country has seemingly kept its coronavirus outbreak in check. “If Japan can avoid being shut down, I think the economic damage will be much lighter. That will be the key difference,” said Takuji Okubo, North Asia director at the Economist Intelligence Unit.
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But that, too, is now in doubt. In the days since the decision to delay the Olympics, Japan has been announcing significant upticks in coronavirus cases. In Tokyo, which on Sunday reported a single-day high of 68 new infections, the governor asked people to stay inside this past weekend. Many heeded the warning.
Mr. Abe said on Saturday that Japan was now at risk of an explosion of cases as it became increasingly difficult to trace infections and limit clusters. He said that although he did not yet need to declare a state of emergency, “we are barely holding on. ” Critics say that it is no coincidence that Japan did not start to voice alarm over the coronavirus until it had given up hope of holding the Olympics this year.
Many fear that Japan has left the outbreak to fester, and say that policymakers may soon discover that winning a few extra weeks of economic activity through a limited virus containment policy may ultimately exact a high price. “There’s a trade-off between stopping the spread of the infection and the economy,” said Tomoyuki Ota, head of economic research at the Mizuho Research Institute. “If you stop economic activity, you can stop the transmission.
“If you can do that quickly, I think you can return to normal.”
But if you do it bit by bit, it’s going to be difficult to bounce back. ” In the United States, unemployment figures have reached catastrophic levels, with almost 3. 3 million claims filed in a single week. In Japan, by contrast, the Ministry of Health, Labor and Welfare reported this month that companies had rescinded 21 job offers to recent graduates — positions that typically confer lifetime employment.
The news drew a storm of media attention and provoked widespread concern on social media. (That number was updated to 32 on Monday. ) Japan’s less restrictive approach to combating the coronavirus has so far mitigated damage to several sectors, J. P.
Morgan said in an analyst’s note on Friday. Spending at supermarkets and drugstores surged in mid-March as people prepared to stay home, it noted, but added that the numbers showed “no widespread pullback” in consumption beyond the sectors that have already been affected. The country has also breathed a collective sigh of relief over the decision to push back the Olympics, now set to open on July 23, 2021. While economically “there is going to be a very high price to pay” from the delay, said Mireya Solís, co-director of the Center for East Asia Policy Studies at the Brookings Institution, “obviously if this was a cancellation, it would be much higher.
” Yosuke Moriwaki, a spokesman at Mitsui Real Estate, which had planned to spend the year after the Games redeveloping the Olympic Village into luxury condominiums, agreed that the postponement was bad, but better than the alternatives. The decision has thrown the company’s plans into disarray, and it is uncertain how to proceed as it is forced to renegotiate deals with contractors and property owners. But if the Games had been canceled, the prestige and value that come from the Olympic brand “would have disappeared,” Mr. Moriwaki said.
Although companies like his may have avoided the worst outcome, the delay will undoubtedly cause large-scale economic disruption in Japan, which had planned on the economic lift from the Games to help overcome the downturn in the last three months of 2019, the sharpest in five years. Before the coronavirus pandemic, many economists believed that the contraction would continue into the first half of this year, tipping the country into a technical recession — commonly defined as two consecutive quarters of shrinking production. But they had forecast that an influx of tourists this summer would propel the economy back into the moderate expansion it had experienced for the better part of the past decade. Direct spending during the Olympic period in the Tokyo region alone was expected to reach several trillion yen, and the country could expect even more growth, according to official predictions, as it basked in the event’s afterglow.
Now, at a minimum, organizers will have to pay to continue maintaining the venues, keep staff members on for another year, and placate sponsors and broadcasters who have already spent billions of dollars on the event. And that’s even before taking into account potential refunds for tickets. Businesses will also find themselves in a tough spot, particularly those in hospitality, where many small companies “made big investments, counting on the 2020 Games,” said Sayuri Shirai, a professor of economics at Keio University in Tokyo and a former board member of the Bank of Japan. Now they may “find it hard to pay their debt,” she said, adding that if the virus outbreak “continues until the end of the year, many small companies will not survive.
” Japan’s tourism industry, which has grown increasingly important to its economy, has been hit the hardest by the pandemic. The government had estimated that the country could see 40 million visitors this year. But as countries close their borders and airlines cancel flights, that number seems impossibly far out of reach. Last month, the number of visitors to Japan dropped almost 60 percent from a year earlier, to just under 1.
1 million, according to data from the Japan National Tourism Organization. This month is likely to be even more dire. Hiroaki Yamamoto, 56, who owns a bus company on the outskirts of Tokyo that operates tourist and commuter lines, said his business was suffering before the Olympics postponement. Now, he said, he will also lose as much as 40 million yen, or $370,000, in revenue he had counted on from renting out his fleet during the Games.
Mr. Yamamoto thinks he’ll be lucky if he can hold out until the end of May. “It’s like the company’s heart has stopped,” he said. Motoko Rich contributed reporting.
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