Extension of restrictions over COVID-19 to hurt private consumption in Japan

Japanese economists doubt that the Japanese government will be able to revive the Japanese economy to pre-pandemic levels before this year ends.

Image courtesy of Kyodo

Two Japanese economists forecast that the decision by the Japanese government on Tuesday to continue its state of emergency on COVID-19 until September 12 while adding seven prefectures to the list will cap private consumption there by between 1 trillion and 3 trillion yen, according to a recent report by the Japan Times.

They claimed that it would slow down the economic recovery of Japan even further, keeping its government from reviving its economy to pre-pandemic levels when this year ends.

Toshihiro Nagahama, chief economist at Dai-ichi Life Research Institute, expects the decision to lower private consumption by 1.4 trillion yen and the gross domestic product or GDP by 1.2 trillion yen versus 880 billion and 750 billion yen respectively without the continuation, saying, “Even if the spread of vaccinations prevents an increase in the number of severely ill patients, there will be no economic recovery unless health care capacity is expanded”, and adding that Japan will not attain the goal until at least the fiscal year of 2022 that starts next April.

Takahide Kiuchi, executive economist at Nomura Research Institute, foresees the decline of private consumption by 3.42 trillion yen, saying, “Economic recovery will be difficult if Japan continues to rely solely on vaccines… Any economic measures will not work unless the government concurrently takes infection prevention measures including improving the medical preparedness”, and adding that the goal will not happen until April to June 2023.

Data from the government on Monday showed that the Japanese GDP rose by only 1.3 per cent annually in the quarter from April to June on an increase of only 0.8 per cent in private consumption.

Moreover, straining of the Japanese medical system due to increasing cases of the delta variant of the coronavirus raised concerns that Japan will lengthen its restrictions on economic activities despite more vaccinations.