18.05.2020

Corona vs Abenomics: Japan’s reaction to the crisis

Over many years, Prime Minister Shinzo Abe has sought to revitalize the Japanese economy, following a policy known as “Abenomics”. While Abenomics-related measures have only resulted in limited success, the COVID-19 crisis might prove to be the nail in the coffin for this economic approach.

© istock / Tony Studio

As an economic superpower, Japan has been navigating a narrow path between partial lockdown measures and attempts to save the economy during the ongoing COVID-19 crisis. To keep the economy running is a major priority for a nation which, following defeat and widespread destruction during World War II, rebuilt its national identity around the narrative of a peaceful, but economically strong world power. Paying attention to economic issues is particularly important for the current administration under Prime Minister Shinzo Abe, who has made the revitalization of the economy a central pillar of his political platform, pushing a policy presumptuously named Abenomics.

 

Bleak economic outlook

Thus, the 18 May 2020 announcement that the country’s economy had shrunk 0.9 per cent (annualized 3.4 per cent) in the first quarter of 2020, i.e. before the declaration of national emergency due the corona virus, came as a shock. A further decline is expected for the second quarter of 2020, which might exceed 5 per cent – some even predict an annualized 20 per cent. And the postponement of the Tokyo Olympics, originally scheduled for July/August, will further slow the economy beyond that. Calling off the Olympics entirely – a scenario becoming more and more likely as the global spread of COVID-19 continues – would be a major blow to the national psyche.

While the government is ascribing the economic downturn to the COVID-19 crisis, Japan had already logged negative economic growth for the fourth quarter of 2019 (7.3 per cent annualized), partly the result of an increase in the consumption tax (from 8 to 10 per cent). This is one of the reasons that the Abe government has been so hesitant in implementing lockdown measures. Mr. Abe cannot afford to admit that Abenomics is a failure, partly because, as the name suggests, the policy is so closely tied to his political destiny, but also – and probably more so – because he needs to keep the economy running smoothly in order to distract the Japanese people from his pet project, the revision of the constitution.

Japan’s post-war constitution, promulgated 1946 and in force since 1947, has never been revised. Abe has declared on numerous occasions that he considers the revision of the constitution his “life’s work.” However, opinion polls have consistently shown a lack of interest by ordinary Japanese in constitutional revision – the polls have been consistently dominated by economic questions, and the current crisis has only reinforced this tendency.  

 

National emergency but no lockdown

As a result of Abe’s priorities, the government has refrained from business closures and binding social distancing measures, a course widely criticized as indecisive. Despite a national emergency being declared on 7 April, both the administration and local governments have only issued “recommendations.” Thus, people are still going to work in Tokyo, Osaka and elsewhere, although the trains are less crowded than usual and telework is slowly – very slowly – making inroads. Japanese are also carrying on with shopping and eating out, and at weekends in the country’s well-known shopping districts it is difficult to see the difference from the time before a national emergency was declared. However, restaurants have seen a decline in customers due to fears of infection and requests by local government to reduce business hours and limit the number of guests they can serve. In Tokyo, for example, it is recommended that eateries close at 8 pm and do not serve alcohol after 7 pm. Bars and clubs, obviously considered less “essential” than restaurants and more challenging in terms of “social distancing,” were asked to shut down completely when the national emergency was declared in early April. Most but not all of these businesses have complied with the government’s requests.

 

Japan’s “biggest-ever stimulus package”: Unlikely to rescue those most in need

To demonstrate its commitment to saving the economy, the Abe government introduced measures to support businesses and employees in March and April. When the national emergency was declared, an economic programme was introduced which was touted as “Japan’s biggest-ever stimulus package” (Kyodo News) – it totalled an eye-watering 108 trillion yen (990 billion USD), equivalent to almost 20 per cent of the nation’s GDP. However, these packages have since proved to be not much more than a PR exercise. Very few companies or individuals had received any support at all by mid-May. According to national broadcaster NHK, as of 12 May, 270,000 companies had contacted government offices over the “Employment Adjustment Subsidies” (EAS) introduced in March, but only 5,000 of them had received any support. And according to the daily Asahi Shinbun, while 200,000 inquiries regarding subsidies for small companies had been received by local administrative offices by 4 May, only 2,500 applications were ever filed and only 250 companies were actually given any money.

The core element of the stimulus package was a cash handout of 100,000 Yen to every individual registered with local government offices (including foreign residents). Although this is a considerable sum, especially helpful for families with children, it is unlikely to rescue those who are most in need. Many of those in irregular employment have lost their jobs or seen a reduction in working hours as a result of the restrictions placed on restaurants and bars, for example. This handout – even if they are able to apply for it and then actually receive it – will only help those most at risk for a month or two. The prospect of getting people – and especially the most vulnerable workers – back to work at this point are bleak, especially as concrete exit strategies are not yet in place.

 

Keeping the economic and Olympic hopes alive

Whether the government’s instructions to keep businesses closed and work from home will be lifted at the end of May, when the national emergency is set to expire, remains to be seen. After a surge of infections in April (the low rates of testing in Japan do not allow accurate estimates of the number of infected people), new COVID-19 cases have been on the decline from early May. For the Abenomics government, as with Trump’s America, it will be difficult to withstand the temptation to prioritize the economy and declare the crisis over. This would also be one way of keeping alive the hope of holding the Olympic Games in Tokyo in summer 2021. As the cases of Singapore and Korea have already shown, however, it is likely that a rapid normalization of daily life in Japan’s megacities, with their crowded trains and malls, will have painful consequences and could very well lead to what many countries fear most at the moment: a second wave of the pandemic.

 

 

Sven Saaler is the FES representative in Japan and Professor of Modern Japanese History at Sophia University in Tôkyô. He has written and edited books on history debates in Japan, East Asian regionalism and Japanese-German relations. Among his most recent publications are Mutual Perceptions and Images in Japanese-German Relations, 1860-2010 (Brill, 2017) and the Routledge Handbook of Modern Japanese History (Routledge, 2017).

The views expressed in this blog series are not necessarily those of FES.

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