Global attention on the newly dubbed “Covid-19” virus has been focused on ground zero of the epidemic in China, and on monitoring pockets of super-spreaders such as in Singapore.
But the virus has proven an enormous source of concern also in Japan, given its proximity to China, and the strong interrelationship between the number two and number three economies of the world.
** The first source of concern in Tokyo is over the potential for the spread of the Covid-19 virus itself: out of the 32 million visitors to Japan in 2019, a whopping 30% are estimated to have come from China. **
** And from an economic perspective, the virus fallout is coming on the heels of a severe downturn already at the end of the year in activity, as evidenced in declining industry production levels, a buildup in inventories, and a downturn in private consumption. **
** But cynically speaking, the virus may provide political cover for Japan’s Prime Minster Shinzo Abe in distancing what is an increasingly sharp slowdown from the impact, primarily, of the government’s well telegraphed, but still controversial, VAT tax hike last October 1 from 8% to 10%. **
That respite for Abe, however, may prove short-lived, as local economists increasingly eye the possibility that Japan may enter a recession in the not too distant future.
The Virus Hits Japan
This week, a taxi driver in Tokyo, who believed one of his passengers may have come from China, was diagnosed with the coronavirus, followed by a taxi driver in Chiba, east of Tokyo. Government officials are investigating how they may have contracted the infection.
And with no abatement in concerns over the spread of the virus, there are doubts now over, for example, attendance of international runners at the “Tokyo Marathon 2020,” which is slated to be hosted just two weeks from now on March 1 — if it is to be held at all.
As the weeks roll on, there will of course also be increasing concerns that the massive Tokyo Olympic festival, planned from July 24 to August 9, might be cancelled if the virus does not abate with the advent of spring, as widely expected, or hoped.
On the manufacturing front, automobile giant Nissan Motor Company raised eyebrows this week when it announced it would be halting its factory production in Kyushu, in southern Japan, as a result of a shortage of supplies of automobile parts from China.
That, is estimated, will freeze the production of an estimated 3,000 cars, even if just temporarily.
The Pressure Piles On
The worse news is that the virus will only add pressure to an already slumping Japanese economy.
At the World Economic Forum meetings three weeks ago in Davos, Bank of Japan Governor Haruhiko Kuroda attributed October’s production slump to the violent, week-long Typhoon Hagibis.
Economists then chalked up December’s fall in retail sales to unusually warm weather dampening demand for winter clothes.
But now, in what is looking like an increasingly likely case of continued weakness if not further deceleration in growth, Prime Minster Abe can justifiably turn to the effects of the virus, and not his economic policies, particularly the VAT hike of last October, as the proximate cause.
Abe Gets a Break
That political breathing room for Abe from the Covid-19 virus is already being felt in Japan’s parliament.
Japan’s opposition parties, or what is left of them, had planned to use this Diet session to drive home an investigation into the flow of funds of a “cherry blossom party” held by Abe last spring, where he is accused of having used public funds to fete his personal and Liberal Democratic Party supporters.
But with the fears of both viral and economic contagion spreading, those opposition parties are now increasingly criticized for putting such petty matters ahead of existential priorities such as the implementation and management of an effective quarantine system.
With a potential recession now looming on the horizon, that political respite for Abe may prove short-lived.