Japan's economy falls into recession as Coronavirus takes its toll

The coronavirus pandemic has caused significant disruptions to the global economy, with estimated costs reaching up to $8.8 trillion (£7.1 trillion). Japan, the world's third-largest economy, experienced a 3.4% annual contraction in the first quarter of 2020, leading it into a recession for the first time since 2015.

 

Japan's economic downturn highlights the broader financial toll of the pandemic. Despite not implementing a full national lockdown, Japan declared a state of emergency in April 2020, which severely disrupted supply chains and trade-dependent businesses. The 3.4% GDP decline in the first quarter of 2020 followed a 6.4% decrease in the previous quarter of 2019, pushing Japan into a technical recession.

The Japanese consumer market has been doubly impacted by the coronavirus and a sales tax increase from 8% to 10% in October. Although the state of emergency was lifted in 39 out of 47 prefectures, the economic outlook remains bleak. Analysts expect the economy to contract by 22% in the April-to-June period, marking the largest decline on record.

To counter the economic impact, the Japanese government has introduced a record $1 trillion stimulus package, and the Bank of Japan expanded its stimulus measures for the second consecutive month in April. Prime Minister Shinzo Abe has promised a second budget to support additional spending measures to mitigate the economic blow of the pandemic.

Japan faces unique challenges due to its decades-long economic stagnation compared to the more robust economies of the US and China. Japan's reliance on exports means it has limited control over consumer demand in other countries, which has been heavily affected by lockdowns. Major brands like Toyota and Honda have seen global sales decline. Additionally, tourism, a significant contributor to Japan's economy, has suffered due to travel restrictions.

In comparison to other major economies, Japan's situation, while severe, appears somewhat better. Economists predict Japan's economy will shrink by 22% annually in the April-to-June period, while the US could see a contraction exceeding 25%. The 3.4% decline in Japan's first quarter contrasts with the US's 4.8% decline, the sharpest since the Great Depression. China's economy, the second-largest globally, contracted by 6.8% in the first quarter of 2020, marking its first recorded quarterly contraction.

Although the US and China have not yet entered a technical recession, defined as two consecutive quarters of negative growth, many economists anticipate they will in the coming months.