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The Japanese Covid-19 state of emergency will have a limited impact on the economy

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

Du Xiaoyi | Xinhua through Getty

SINGAPORE – Japan’s latest declaration of a state of emergency in some parts of the country is unlikely to have a serious impact on the economy, economists told CNBC.

“The economic impact of the announced measures will be less than in the last episode,”

; Shigeto Nagai, head of Japanese economics at research firm Oxford Economics, told CNBC.

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

This latest state of emergency in Tokyo, Saitama, Chiba and Kanagawa until February 7 was declared by Japanese Prime Minister Yoshihide Suga last week in an attempt to combat the latest surge in coronavirus infections.

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

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

Limited impact on Japan

Nagai of Oxford Economics cites several factors to explain the limited economic impact, including business constraints, which target mainly restaurants and bars in emergency areas.

The opening hours of food and drink establishments in these areas will be reduced, according to a statement from Suga last week. People are also discouraged from going out after 8pm. For insignificant, non-urgent reasons.

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

Marcel Tiilliant, a senior economist at Capital Economics in Japan, told CNBC: “The restrictions are very soft and mainly affect restaurants and entertainment, which together account for about 3% of GDP.”

“Given that the state of emergency will last only one month, enlargement to the Kansai region will not lead to a delay of more than 0.1% of GDP,” Tialiant said, referring to the latest emergency measures, which are reported to be extended to more areas.

“We still believe that the state of emergency will be extended across the country and will become more draconian, with shops and restaurants being fully demanded to be closed,” he said, adding that Capital Economics expects a 1.5% drop in quarter in the first quarter if that happens.

Suga’s political future

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

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

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

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