Japan is at a critical juncture in its struggle to resuscitate its debilitated economy without allowing a resurgence of new coronavirus infections.
It is vital to improve the levels of controlling the epidemic and reactivating the economy while maintaining a balance between these two factors.
The Bank of Japan’s latest “tankan” quarterly business confidence survey for June shows the sentiment among large manufacturers fell to its lowest point since the global recession triggered by the collapse of U.S. investment bank Lehman Brothers in 2008.
Business confidence among small and midsize firms has also nosedived, and businesses are expecting even darker days ahead. The number of companies experiencing a surplus of labor has increased significantly, a radical change from the labor shortages they were facing a while ago.
In late May, the government started easing COVID-19-related voluntary restrictions, allowing businesses to reopen. Consumer spending has since picked up slightly, but full economic recovery is still far off.
Governments and central banks around the world have responded to the unprecedented economic strains caused by the pandemic with scales of fiscal and monetary expansion never before seen. They have provided gargantuan doses of stimulus to protect jobs, shore up incomes, help companies finance their operations and prevent market turbulence.
Even though job losses and corporate bankruptcies are on the rise, the Japanese economy as a whole has so far managed to avoid falling off the cliff.
But the hardest part has yet to come for the economy.
While the outbreak appeared to have been mostly brought under control, the number of newly confirmed cases is trending upward in Tokyo, creating a strong case against lowering the guard.
Many already weakened businesses could start collapsing if they are forced into voluntary restrictions on their operations again and battered by weakening demand.
The job picture is no less bleak. The ranks of the employed are shrinking, mainly among non-regular workers, while the number of those who are temporarily out of work remains high. The jobless rate could start soaring.
There is no ruling out the worst-case scenario where the government is forced into imposing tight restrictions on human contact to stem the spread of infections. The government needs to prepare policy measures to keep the economy from collapsing in this kind of situation.
The government should at the same time hatch effective plans for minimizing the damage to the economy while putting the top priority on protecting people’s lives and health.
It should scrutinize the lessons learned in its battle against the virus so far and act swiftly to find an approach that is effective in containing the spread but does not substantially impact the economy.
Crucial to the efforts to overcome this challenge are enhanced medical and testing capabilities. The government should not skimp on human, material or financial resources in this respect.
Even if the battle is won at home, that will not end the nation’s economic woes. The global economic outlook remains deeply murky. There is no prospect of a sharp recovery in the inflow of foreign tourists.
It is also difficult to bring economic activities in “sanmitsu” situations back to their former levels until an effective vaccine is made widely available. “Sanmitsu” is a term coined by the government to indicate a risk-fraught confined environment where many people gather closely together and come into close contact with each other.
The government should not be tempted into taking measures to stoke demand that strongly entices people to move around and make contact with one another.
If business confidence continues sinking, dashing hopes of the nation’s recovery from a prolonged period of weak growth, the Japanese economy will be at risk of becoming mired in a long-term slump.
The government should work with the private sector to map out an effective strategy for continued investment in human resources, technological development and production facilities while capitalizing on demand in the digital economy and other growth areas.