Bloomberg
(Bloomberg) -- The short-term economic pain of further extending Tokyo’s state of emergency is likely worth the tradeoff against the risk of a renewed uptick in virus cases that could threaten the staging of the Olympics, according to economists.Suppressing activity for a little longer won’t add too much extra damage to an economy that is already showing some signs of recovery even under existing restrictions, economists said. At the same time, ensuring there is no rebound in virus infections will help maintain the case for staging the Summer Games, they added.“The Tokyo metropolitan government, in particular, likely fears that the Olympics can’t take place if the current rules are relaxed and case numbers go up again,” said economist Mari Iwashita at Daiwa Securities Co.Read More: Japan Looks to Extend Tokyo Area Virus Emergency by Two WeeksPrime Minister Yoshihide Suga said Wednesday evening that he was considering extending the emergency state in the capital and surrounding areas by about two weeks from March 7. His comments were the strongest indication yet that the extension will go ahead, though Suga said a formal decision would come after further consultation with experts.Given a choice between inflicting a short delay in the economy’s recovery and avoiding an uptick in infections that could influence decision making over the staging of the Olympics, Suga looks set to take the safety-first option. Opinion polls also show strong popular support for extending the emergency.“A two-week extension would mean a 360 billion yen ($3.4 billion) negative hit,” said Junichi Makino, chief economist at SMBC Nikko Securities Inc. “That would push gross domestic product down by 0.05 percentage point.”Most of the economic damage to the economy from the emergency has already occurred and an extension in the Tokyo region would largely push back spending for a faster recovery later, analysts said. Economists surveyed last month see the economy shrinking 5.9% in the first three months of this year under the emergency, following a 12.7% jump last quarter.A continued suppression of activity now would result in pent-up demand emerging more clearly in spending during the Golden Week holidays in early May, according to economist Hiroaki Muto at Sumitomo Life Insurance Co. Consumption was already holding up better than expected last quarter, Muto added.Under the emergency, local governments have instructed bars and restaurants to close at 8 p.m., and advised people to avoid going out unnecessarily. The measures, while limited, have helped much of the country bring infections under control, but have proved damaging for many retail and restaurant businesses.Despite the lingering voluntary restrictions, there is evidence that after a drop at the start of the emergency, activity has been picking up as the emergency was lifted early in some cities and as cases fell.The seven-day average of new infections in Tokyo was at 278 on Wednesday, well below a 500 threshold cited by the government as one of several requirements for lifting the emergency.Bloomberg Economics’ high-frequency, alternative data show that economic activity was already picking up in February in Japan, beyond levels in other developed countries.Bloomberg Intelligence’s Catherine Lim forecasts that Japanese retail sales could rise this month, even if the state of emergency is extended. Consumer sentiment may be brightening amid declining Covid-19 cases, helping to boost purchases of Uniqlo clothing and curb Muji’s apparel-sales fall in March, she said.Still, lifting the emergency could trigger a renewed uptick in numbers in the capital and would go down badly with voters.“We have the Olympics and the July Tokyo government elections coming up,” said SMBC’s Makino. “If the emergency state is lifted early and cases jump again to the point of another shutdown before the elections, it’ll be like throwing mud in the face of the Tokyo governor and the national government.”For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.