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The already fluctuating Japanese economy is facing a major blow from the Corona virus

TOKYO – The Japanese economy is already horrific because of a devastating hurricane and an increase in the portfolio’s closing tax. Now, the coronavirus that has halted business in neighboring China threatens to push Japan into a full recession.

Japan said on Monday that its economy contracted at an annual rate of 6.3 percent in the three months to December, the worst contraction since mid-2014. The results preceded the outbreak of the virus, but was affected by the months-long decline in Chinese demand for Japanese exports.

Officials were optimistic that easing Hurricane Hagis and increasing the consumption tax would bring the country back to growth at the start of the new year. But then the coronavirus began to spread to deadly in China, stopping the profitable flow of tourists from that country and increasing the vulnerability of Japanese exports.

If the Japanese economy – the world’s third largest after the United States and China – shrinks again in the first quarter of 2020, the country will officially fall into recession for the first time since a short slide in 2015. The recession is generally defined as consecutive quarterly contractions.

It is not clear how long the outbreak will last, but the entire virus The global economy may suffer a long-term shock in China, and some economists are already predicting slowing growth for this year. The effects of the virus are very rippling on Japan: China is its largest trading partner and by far the largest source of visitors, many of whom are willing to shop.

The spread of the Corona virus in Japan itself is a random card. The country experienced the most confirmed cases outside of China, with more than 400 cases, including from a quarantine cruise ship in Yokohama. Last week, Japan recorded its first death from the virus.

But China’s ban on group travel as it tries to contain the disease is the most pressing economic threat to Japan. Effects can already be seen in places like Shun Natori pastry shop in Tokyo’s busiest tourist area.

Lunar New Year holidays are the peak season for Chinese tourism to Japan, but the streets and small alleys surrounding Mr. Natori’s work have been unusually quiet for weeks. The nearby Sensoji Temple – famous for its huge red lanterns and crowds of tourists taking a selfie – is almost empty.

Mr Natori said, the last time things were slow, was in March 2011, after an earthquake and tsunami caused a nuclear collapse, which scared off tourists from Japan for several months.

Japan also recovered from the storm, to her Industrial output rose slightly in December. But now the Coronavirus poses a serious threat to a critical market for the goods being produced. Japanese manufacturers are the main suppliers of Chinese companies, and send them everything from precision machine tools to smart phone and automotive components.

Even before the outbreak of the disease, Japanese companies were struggling to cope with the effects of China’s economic slowdown, which led to part of its trade war with the United States. Japanese exports to China were Down 7.6 percent In 2019 from the previous year.

The epidemic also affected the operations of Japanese companies inside China. In response to the virus, the Chinese authorities extended the Lunar New Year holiday, effectively shutting down manufacturing activities for many Japanese companies.

Toymaker Tomy lowered its earnings estimate by the end of the fiscal year, which closes on March 31, due to a slowdown in production in China, Japan’s National Broadcasting Corporation, NHK, mentioned. Nintendo has said it will delay its console shipments to Japanese consumers as a result of the outbreak.

In his speech to investors this month, Hiroki Tutuki, Sony’s chief executive, warned that the outbreak could have “a major impact on the supply chain, logistics and sales”, potentially erasing the expected increase in profit growth.

But perhaps no companies in Japan feel the effects of the epidemic such as those dependent on tourism, which have grown in great importance to the Japanese economy in recent years. The number of visitors to Japan more than tripled over the past decade, to reach 31 million in 2018, according to government statistics.

More than 30 percent of these visitors came from China – nearly 9 out of 10 for vacation – making the country the largest source of tourists to Japan.

While visitors from South Korea and Taiwan – the second and third in Japan’s tourism rating – spend most of their money on sightseeing, Chinese travelers tend to shop.

Buses from Chinese bargain hunters – beware of high taxes and knockoff products at home – land in Tokyo’s upscale shopping districts to buy foreign and domestic goods in a wave of consumption known in Japan as bakugai, or “explosive shopping.”

By supporting domestic consumption with Japan’s population declining, visitors from China make a significant contribution to the country’s end result.

“If you look at the patterns of consumption of Chinese visitors to Japan, a lot of people are buying things like make-up,” said Keiji Kanda, chief economist at the Daiwa Institute of Research. Be deeply affected. “

Some hope, though, could be just around the corner. Mr Natori, who owns a pastry shop near Sensoji Temple, said he looked forward to the cherry blossom season, when tourism usually blooms.

In anticipation of this, he plans to use the lost time to “think about a seasonal list.”

Makiko Inoue contributed to the reporting.

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