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Japan’s Economy: Monthly Outlook (Jan 2021)

Jan-Mar period seen down just slightly, but risk of double-dip recession cannot be eliminated

Keiji Kanda

Akane Yamaguchi

Yutaro Suzuki


◆Japan’s economy is rapidly deteriorating with the declaration of a second state of emergency in response to the growing seriousness of the spread of COVID-19. In November 2020, consumption in the areas of eating out, travel and entertainment were at about -20% in comparison to what they were before the coronavirus crisis. The decline is seen to have ultimately reached around -50% due to the major decline in consumer turn-out. The declaration of a state of emergency affecting eleven prefectures is expected to push down real GDP by around 1.3 tril yen per month including the effects of the temporary suspension of the Go To Campaigns.

◆Real GDP is estimated to see a monthly decline of around 0.4 tril yen due to the temporary suspension of the Go To Travel campaign. The extent of influence this is expected to have on regional economies by prefecture is especially large for Yamanashi and Okinawa, and also comparatively so for Fukui, Toyama, and Oita. If COVID-19 continues to spread in the future preventing the Go To Travel campaign from resuming for a longer period of time, the downturn in these regional economies will become even more severe.

◆The 2021 Jan-Mar period real GDP growth rate is expected to suffer a decline of -2.8% q/q annualized. The outlook for the 2020 Oct-Dec period growth rate was revised upwards, but consumption is expected to be suppressed to a certain degree even in regions other than those for which the state of emergency was recently declared. Hence, figures were revised downwards from the economic outlook of January 12. If the state of emergency is extended for an additional month affecting all prefectures, leading to the same degree of suppression of consumption as was seen during the spring of 2020, then the 2021 Jan-Mar period real GDP growth rate could decline by as much as -11.7%. Since there is risk of a double-dip recession depending on how the COVID-19 situation develops in the future, it would be best for government policy to focus on preventing further spread of the infection for the time being.

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