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

People walk at Shibuya Station in Tokyo, Japan, January 9, 2021.

Du Xiaoyi | Xinhua via Getty

SINGAPORE – Japan’s latest declaration of a state of emergency in parts of the country is unlikely to take a huge toll 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 Japan’s economy at research firm Oxford Economics, said in an email to CNBC.

He referred to Japan’s nationwide state of emergency, which was declared in April 2020 in the earlier days of the coronavirus pandemic. The state of emergency at that time ended in late 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 an attempt to combat the recent rise in coronavirus infections.

The state of emergency extends to several areas with local media reporting that Suga will add seven prefectures, including Osaka.

Japan has registered more than 298,000 confirmed Covid-19 infections, while at least 4,192 lives have been taken by the disease, according to data from the public television station NHK.

Limited impact on Japan

Oxford Economics’ Nagai cited several factors to explain the limited economic impact, including business restrictions, which are mainly directed only at restaurants and bars in the state of emergency.

The operating hours of restaurants and beverage companies in these areas are shortened, according to the announcement from Suga last week. People are also advised against excursions after kl. 20 for non-essential, non-urgent reasons.

The number of people traveling to their workplaces is also reduced by 70% – through teleworking. However, schools and kindergartens will not be closed this time.

Capital Economics Senior Japan Economist Marcel Thieliant told CNBC: “The restrictions are very mild and mostly affect eateries and entertainment, which together account for about 3% of GDP.”

“Given that the state of emergency lasts only one month, the expansion into the Kansai region will not result in a pull of more than 0.1% of GDP,” Thieliant said, referring to recent emergency measures that are said to be extended to several areas.

“We still believe that the state of emergency is expanding nationwide and being made more draconian, with shops and restaurants being asked to close completely,” he said, adding that Capital Economics expects a 1.5% decline in the quarter compared to the first consumption quarter if that happens.

Suga’s political future

Dealing with the Covid-19 situation in Japan could affect the chances of re-election of Suga, who took over as prime minister last year following the unexpected resignation of his predecessor Shinzo Abe due to health concerns.

Oxford Economics’ Nagai warned that Suga – whose approval rating “has already fallen sharply in recent weeks” – would be dealt a “serious blow” if the state of emergency fails and must be extended beyond a month.

“In addition to a number of political scandals, (Suga’s) lack of leadership in Covid-19 has been heavily criticized,” Nagai said. “The only chance to hold an election in the lower house is sometime in the fall after the Olympics, and (Liberal Democratic Party) may start looking for another leader to win the election.”

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