By Max Sato
(MaceNews) – Japan’s government has eased some restrictions on economic activity, risking a renewed upswing in coronavirus cases, as it seeks to fight the pandemic and support a recovery from last year’s slump at the same time.
Ahead of general elections sometime this year, Prime Minister Yoshihide Suga faces sluggish approval ratings in light of officially confirmed news reports that government regulators were routinely entertained by a satellite TV program provider where his son works and the former monopoly telecom giant Nippon Telegraph and Telephone Corp.
Suga’s press secretary, Makiko Yamada, resigned March 1 after she admitted in parliament that she and other bureaucrats were treated to an expensive dinner by Tohokushinsha Film Corp. executives, including Seigo Suga, in 2019, when she was a senior official at the Ministry of Internal Affairs and Communications, which regulates broadcasters and telecommunications carriers.
Suga’s popularity plunged last year when he was slow to suspend, in late December, the government’s controversial “Go To Travel” campaign launched in July to subsize hefty discounts on hotel fees and domestic transportation costs aimed at shoring up the tourism industry, a move which was believed by medical experts and economists to have triggered a spike in COVID-19 cases.
Owners of bars and restaurants have also been complaining that fiscal support is not enough to pay the rent and cover personnel costs at a time when their revenues plunged during the pandemic. Some of them have been defying the official request and staying open until late hours.
The numbers of confirmed COVID-19 infections and deaths in Japan stood at 458,398 and 8,883, respectively on Monday, which are still relatively low among industrialized economies, but there is concern that safety measures may not be fully in place and hospital bed shortages could emerge again in a fourth wave of coronavirus cases, as people lower their guard in mild spring weather.
Low Voter Support
The March 13 survey by the Mainichi Shimbun daily and the Social Survey Research Center showed that 57% of those polled said the coronavirus state of emergency in four prefectures in the Tokyo metropolitan area, which was declared in early January, should be extended after March 21, while only 7% said that it should be lifted immediately.
The survey also showed that 23% approved of the government’s measures to fight the pandemic, unchanged from the previous poll on Feb. 13, while 57% disapproved, up from 51% previously.
The approval rating of the Suga administration was little changed in the latest Mainichi survey, at 36%, compared with 38% in February and 33% in January, but down sharply from a peak of 64% last September, according to the Mainichi poll.
The latest opinion survey conducted by the public broadcaster NHK from March 5 to March 7 showed that the approval rating of the Suga government edged up to 40% from 38% in February, but it was far below 62%, Suga’s highest point marked in September, when he replaced Shinzo Abe, who stepped down for poor health.
Suga is serving the remainder of Abe’s third three-year term until Sept. 30 this year as the president of the ruling Liberal Democratic Party, and thus premiership due to the LDP’s majority in both chambers of parliament. General elections must be held 30 days before the four-year term of the lower house expires on Oct. 21.
Last week, Suga decided to end the state of emergency for Tokyo and three surrounding prefectures on March 21 while promising to reinforce surveillance of new cases caused by coronavirus variants and implement prompt vaccinations. Japan’s COVID-19 vaccine rollout has been slow. Following ongoing vaccinations for medical practitioners, people at 65 years old or older are expected to receive their first jab next month.
At the same time, the government continues asking people to stay home as much as possible and avoid non-essential shopping or traveling. The ban on entries of foreign nationals without a visa is expected to remain in place.
Prefectural governors are tasked to decide on business hours. Tokyo and three neighboring jurisdictions are urging eating and drinking places to close by 9 pm at least until the end of March, an hour later than during the state of emergency.
Easing Restrictions at Delicate Time
Mitsubishi UFJ Research and Consulting economist Shinichiro Kobayashi said the government is “passing the buck” to people in crucial decision-making by ending the state of emergency at this delicate timing. Safety measures by businesses and reasonable behavior by consumers are being tested, he added.
“People in the metropolitan area are tired of the restrictions, so even if the government had opted to extend the emergency period, it would have been breached gradually,” Kobayashi said.
“The lifting (of the state of emergency) is expected to slightly push up economic growth as the restrictions on eating out, hotel stays and leisure will be eased,” he said. “But if we see a higher number of people stepping out amid signs of a rebound (in coronavirus cases), it could trigger the spread of infections and prompt the government to declare a state of emergency again.”
Kobayashi noted the risk of infections spreading to rural area from big cities through leisure traveling and business trips. “Should that happen, the negative impact of renewed restrictions to be imposed on economic activity would be greater than the benefit of short-term gains in demand, which in turn would mean the end to the state of emergency were counterproductive,” he warned.
GDP Ups and Downs
Looking at the near-term outlook, Japan’s economy is expected to continue showing sharp fluctuations until the middle of 2021.
Economists on average forecast that the domestic economy would contract 5.82% at an annualized pace in the first quarter of 2021 in reaction to the strong growth in the previous two quarters, but they also predicted it would rebound 5.83% in April-June, according to the latest monthly ESP Survey of 36 forecasters by the Japan Center for Economic Research conducted from March 4 to March 11.
The economists also expect the real gross domestic product to expand 3.90% in fiscal 2021 and 1.86% the following year after contracting 4.91% in the current fiscal year.
“Sentiment surveys pointed to improvement in February, which will support a rebound in April-June GDP,” said Sumitomo Mitsui DS Asset Management chief economist Akiyoshi Takumori.
“Production cuts by automakers due to global semiconductor shortages are a cause for concern, but the shortages appear to be a temporary phenomenon in the middle of the move toward digitalization,” Takumori said. “I think the underlying trend for exports and production is upward.”
Chip Shortages
The chip shortage has been made worse by a fire that broke out Friday at a plant of Renesas Electronics, a key Japanese automotive semiconductor supplier. The company expects to resume production at the factory east of Tokyo in about a month.
Nomura Securities economists estimate that domestic automobile production will fall by about 400,000, or 17% of 2.4 million units in the April-June quarter, which would trim real GDP growth by 0.7 percentage point, given car output accounts for 4% of total domestic output.
But they also predicted that the impact of production cuts will be marginal on Japan’s economic growth for the whole of fiscal 2021 that ends on March 31, 2022 as carmakers are expected to make up for most of the lost production later in the year.
The monthly Economy Watchers Survey released this month by the Cabinet Office indicated that household and business confidence picked up in February on hopes that vaccination will contain the spread of the coronavirus and also due to continued solid consumer spending on takeout food, groceries and other stay-home items.
The survey showed firmer orders related to automobiles and construction machinery, although it also depicted generally depressed conditions for the tourism industry and office rentals.
The Watchers sentiment index for Japan’s current economic climate rebounded 10.1 points to a three-month high of 41.3 in February on a seasonally adjusted basis, but it is still well below 53.0 in October, which was the highest in over six-years. The Watchers outlook index, which shows sentiment about the situation two to three months ahead, also surged 11.4 points to 51.3 in February, hitting the highest since 52.1 in August 2018.
Japanese exports posted the first year-on-year drop in three months in February, down 4.5% vs. a 6.4% jump in January, partly in reaction to rush shipments to Asia in January before the Lunar New Year holidays last month, but the pickup trend in exports appears to be intact, backed by solid Chinese recovery demand, data released last week by the Ministry of Finance showed.
Demand for semiconductor-producing equipment continued to be strong amid the global silicon cycle uptrend and a surge in demand for consumer electronics due to stay-home pandemic lifestyles. Shipments of automobiles, which had initially led a pickup in exports, dipped for the fourth straight month as chip shortages are forcing Japanese carmakers to trim production.
Japan’s industrial production rebounded in January, up 4.3% on month (revised up from a preliminary +4.2%), marking the first rise in three months and reflecting solid domestic and overseas demand despite the pandemic, according to the latest data from the Ministry of Economy, Trade and Industry. Factory output was still 5.2% (revised from -5.3%) below the level seen a year earlier.
Based on its survey of manufacturers, METI projected that industrial production would rise 2.1% on month in February (revised up from -0.3% forecast last month) but fall 6.1% in March. Adjusting the upward bias in output plans, METI forecast production would dip 0.4% in February. Takumori forecast February output data, due on March 31, will show a 0.9% drop.
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Contact this reporter: max@macenews.com
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