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Japan’s Economy: Monthly Outlook (July 2020)

Demand stimulation measures straying off course: Haste makes waste in managing an economy coexisting with COVID-19

Keiji Kanda

Akane Yamaguchi


◆With economic activity restarting in stages, Japan’s economy is gradually pulling out of the most severe economic crisis it has experienced since the period just after the end of WWⅡ. According to June trade statistics, export volume grew for the first time in four months. Personal consumption began to pick up in May after the lifting of the declaration of emergency and with the help of government measures, and the recovery trend strengthened in June. However, the real GDP growth rate for the Apr-Jun period is expected to fall deeply into negative territory by considerably more than -20% q/q annualized.

◆Avoidance of a major decline in household income and chain-reaction bankruptcies contributed to the recovery in personal consumption. Disposable income actually grew sharply during the Apr-Jun period due to various benefit payments, where otherwise one would have expected it to decline. In addition, during the same period the number of bankruptcies were at their lowest point in around thirty years. Cash on hand compared to sales was particularly abundant for small and medium-sized enterprises, while in addition, the government and the Bank of Japan provided large-scale financing support measures.

◆With COVID-19 infection nowhere near containment, demand stimulation measures are accompanied by the risk of a further spread of the disease. As has become apparent in the confusion surrounding the “Go To Campaign”, the government’s demand stimulation measures are lacking in awareness that they must be balanced with the need to prevent the spread of infection. The government’s top priority should be avoidance of the need to reissue a state of emergency, which could expect to see an approximately 3.9 trillion yen per month drop in consumption, while at the same time steadily promoting the normalization of economic activities. In order to do so, managing the economy should take a slow and steady approach, with demand stimulation measures implemented giving sufficient attention to the risk of spreading infection on a small scale, while gradually resuming economic activity.

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