Japan Considers Extension of Covid Emergency as Economy Sputters

(Bloomberg) -- Japanese Prime Minister Yoshihide Suga looks set this week to extend a state of emergency for major metro areas that will inflict more pain on the economy, as he tries to stem record Covid-19 cases and reverse a fall in public support.

On top of this, parliament is expected to vote as early as Monday on measures to add teeth to the emergency orders, including fines for bars and restaurants that defy the current voluntary guidelines to close by 8 p.m.

The emergency covering 11 areas including Tokyo, Osaka and Nagoya has helped halt a rapid acceleration of virus cases, which hit records in early January and raised worries of ripping through the developed world’s oldest population. While infection numbers have dropped since then, Suga’s government has said they are still worryingly high.

Suga is planning to extend the emergency by about one month beyond its Feb. 7 deadline and the possible removal of Tochigi prefecture from the list as the situation improves there, according to local media reports. The announcement could come as early as Monday, broadcaster FNN said.

Japan’s current measures that also include seeking people to work from home are far less stringent and enforceable than the lockdowns of some European nations. But they have already caused a sea change, in the view of economists. Instead of the year starting with a slowing recovery, some of them now see a double-digit contraction looming.

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The prime minister, who runs the risk of being replaced by the ruling party ahead of an election that must be held by October, has seen his support slide since he took office about four months ago. Critics contend his focus on propping up the economy has slowed efforts to stem infections. Now he is faced with extending the distress of businesses to control the virus, shoring up his leadership and keeping alive the hope of holding the Olympic Games in summer.

“The damage to businesses would be enormous,” said sushi restaurant owner Mamoru Sugiyama, referring to an extension. Bars and eateries are among the firms hardest hit by the guidelines. He has temporarily closed his restaurant, which boasts a history of 130 years in the swanky Tokyo shopping district of Ginza.

“Some businesses are about to use up their loans and I think if the emergency continues through February, firms may start going bust one after another, even in Ginza,” said Sugiyama, who also heads a coalition of about 370 local restaurants and bars.

Still, a Nikkei/TV Tokyo survey suggests public support for a longer emergency. The Jan. 29-31 poll showed 90% of respondents favoring an extension.

The government has said the emergency can end when the virus crisis eases to Stage 3 on a four-stage scale that draws on six data points.

In Tokyo, that would mean daily infections falling below 500. Tokyo reported 633 new infections on Sunday, well below the recent peak of 2,447 on Jan. 7. As of Jan. 27, the capital’s hospital bed occupancy rate was 73% and critical care units were at 113% of capacity, according to the health ministry. Both numbers would have to come down below 50% to reach Stage 3.

“We can see that the state of emergency has had an impact, but it’s been too weak,” said Yoshihito Niki, a professor of clinical infectious diseases at Showa University’s School of Medicine in Tokyo, indicating a need to prolong the measures. “The government will need to exercise patience at least through February.”

Japan’s parliament is set to pass two bills this week imposing penalties on those who fail to obey official virus guidelines. This would include fines of up to 300,000 yen ($2,866) on bars and restaurants that don’t comply with orders to close early, according to the website of the opposition Constitutional Democratic Party of Japan. A separate act on controlling infectious diseases would allow fines of as much as 500,000 yen on those with Covid-19 who refuse to be hospitalized, or leave before being formally discharged.

Since the declaration of the emergency in early January, economists warned that the less stringent advisories compared with the first emergency in April, risked being insufficient and causing more damage over time. This time, schools remained open and streets continued to see foot traffic, albeit smaller than during normal times, despite repeated calls from officials to stay home.

Toshihiro Nagahama, economist at Dai-Ichi Life Research Institute, sees an emergency extended to two months shaving about 3 trillion yen from the economy.

While the consensus among analysts is for the economy to shrink an annualized 2.5% this quarter, economists Yoshimasa Maruyama and Koya Miyamae at SMBC Nikko Securities Inc., now see a stronger finish to 2020 whiplashing into an 11.5% contraction in the three months through March.

Still, an unemployment rate of just 2.9% and year-on-year falls in the number of bankruptcies show that spending and loan support from the government and the Bank of Japan have helped cushion the economic blow of the pandemic so far. Suga’s administration got a third extra budget through parliament last week offering another round of help for businesses, medical facilities and the economy.

The concern going ahead is how much longer companies can hang on if the emergency is extended and consumer spending remains subdued.

Yasuhide Yajima, chief economist at NLI Research Institute, warns there won’t be a dramatic revival of growth even when the emergency ends unless there’s more concrete reassurance for the public.

“Regardless of the state of emergency, consumption isn’t going to come back until we see the impact of vaccination,” Yajima said.

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