SAWT BEIRUT INTERNATIONAL

| 18 May 2021, Tuesday | النسخة العربية

Recession risk looms as Japan eyes 3rd state of emergency to contain pandemic

Japan’s government is expected to issue a third state of emergency on Tokyo and 3 western prefectures that could last for nearly 2 weeks, media reports say, highlighting its struggle to deal with a spike in new coronavirus case numbers.

Some analysts say the decision, expected to be made as early as Friday, may push Japan back into recession if retailers are asked to close during the Golden Week holidays, which begin next week and run through early May.

A renewed state of emergency would also cast doubt on whether Tokyo can host the Olympics in July, despite Prime Minister Yoshihide Suga’s assurances it will proceed as planned.

Hiroshi Shiraishi, senior economist at BNP Paribas Securities, said “the risk of a double-dip recession has clearly heightened,” adding “the impact of imposing curbs on Tokyo and Osaka alone would be quite big.”

With thousands of new infections resulting from highly infectious strains of the virus, Suga said on Wednesday the government is set to decide this week whether to declare the state of emergency for major parts of the country.

If adopted in all 4 regions that made requests, the emergency measures would cover around a quarter of Japan’s population of 126 million and almost 30% of gross domestic product (GDP).

The government is looking into imposing state of emergency curbs from April 25 through May 11, Jiji news agency said.

Other media have raised the possibility of stronger curbs than those issued last time in January, such as requests for department stores and other big retailers to close.

BAD TIMING

“The timing is not good,” as it would hit service spending during the spring leisure season, said Takumi Tsunoda, senior economist at Shinkin Central Bank Research Institute.

Tsunoda cut his forecast for second-quarter GDP to a 0.5% quarter-on-quarter rise, half the previously projected pace.

Japan’s economy has emerged from last year’s severe slump thanks to robust exports.

However, analysts expect GDP to have shrunk in the first quarter because of the hit to consumption from the second emergency curbs that rolled out in January and say a second consecutive contraction in Q2 that would constitute a recession is possible.

While fresh state of emergency curbs likely won’t trigger more monetary easing, it could affect the Bank of Japan’s quarterly growth projections due out next week, according to analysts.

“Given prospects of strong global demand, the BOJ probably won’t make big changes to its forecast of a moderate recovery,” said Izuru Kato, chief economist at Totan Research.

“But a contraction in second-quarter GDP can’t be ruled out, so the BOJ will probably issue plenty of warnings on the risks to domestic demand,” he said.

While the country has so far warded off an explosive spread of the pandemic that has plagued multiple western countries, it is locked in a fourth wave driven by infectious strains of the virus and amid a sluggish inoculation drive.