Japan’s Economy: Monthly Outlook (April 2020)

◆The global financial markets bottomed out during the latter part of March and regained some calm for the moment. A major factor here was the FRB’s immediate countermeasures, which relieved credit uncertainty. However, credit uncertainty is still smoldering in Europe, which was notably slower in responding. Meanwhile, the situation remains unchanged for corporations with low credit ratings which are not eligible for bailout, and concerns regarding liquidity in the emerging nations. And there is high risk of a recurrence of rising yields on corporate and government bonds with low credit ratings. Ultimately this all depends on the length and depth of the impact of the corona disaster on the real economy.

◆Looking at the real economy, there is some good news with local recovery in the Chinese economy and promise of the partial lifting of lockdown measures in the US and Europe. However, the recovery in China has yet to be accompanied by growth in demand, and gives one the feeling that there will be difficulties ahead for the continuation of recovery. Meanwhile, it is highly likely that mass unemployment in the US will slow the pace of recovery in demand. Even more essentially, risk remains great that the infection could begin to spread again after removing lockdown measures, or that there could be a second or even third wave of the pandemic triggered by the spread of the corona disaster in the southern hemisphere. It is therefore necessary to be prepared to face an era with COVID-19, accompanied by the economic impact of social isolation.

◆As for the Japanese economy, the impact of social isolation measures is now becoming tangible centering on certain industries, including passenger transport, accommodations, department stores, eating out, entertainment, and others. At the same time we should not ignore the fact that there is some replacement demand and special demand being generated in industries such as supermarkets, e-commerce, medicines, telecommunications services, software, and electronic devices. As impact on the overall economy continues, it should also be pointed out that one of the characteristics of the COVID-19 era is that disparities in performance appear depending on the industry.