The Impact of the State of Emergency on the Japanese Economy
State of Emergency should be extended until Stage II
-- Consumption will set to recover from spring 2021
-- Large benefit to the medical care system and the economy
2021/02/26
The Japanese government declared a state of emergency in early January 2021 in response to the surge of COVID-19 cases in 11 prefectures including the Tokyo metropolitan area, Keihanshin (Osaka, Kyoto and Hyogo), Aichi and Fukuoka. The main measures include reducing the number of commuters by 70%, refraining from going out after 8pm, and requesting restaurants to shorten opening hours. In this report, we present an analysis on when the state of emergency should be lifted in terms of economic impact. If the declaration is lifted in stage II level (approximately 2 weeks later than in stage III on March 7th), it will greatly reduce the risk of a collapse of the health care system, and consumption will continue to recover at least until autumn, boosting the economy. The possibility that the Tokyo Olympic and Paralympic Games will be able to be held in some way will increase. On the other hand, if the declaration is lifted earlier in stage III, the infection will spread again in mid-2021, and the country will be forced into a third state of emergency in this summer. This will cause a slowdown in consumption, although the initial downturn in consumer spending will be small. Under the current situation where there is no proper treatments for the COVID-19 virus and vaccine availability is uncertain, we should prioritize curving the spread of COVID-19, not coexisting with it.
The economic downturn is smaller if infection is suppressed up to stage II 
Under scenario 1, the state of emergency is ended in stage III (e.g. In Tokyo, the weekly average of daily new cases must be 500 or less), and under scenario 2, it is ended in stage II (100 or less new cases). The consumption level is estimated from the flow of people. It is assumed that the flow of people after the end of the state of emergency will be the same as that of the end of the state of emergency in May 2020.
Sources: Cabinet Office “Quarterly Estimates of GDP”, Japan Center for Economic Research,”SA184R Short-Term Forecast”
This report is written by Tatsuo Kobayashi, Principal Economist, Tetsuaki Takano, Senior Economist, Yuto Kajita, Senior Economist, and Kazumasa Iwata, JCER President.
- 2021/02/26
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The Impact of the State of Emergency on the Japanese Economy
State of Emergency should be extended until Stage II
-- Consumption will set to recover from spring 2021
-- Large benefit to the medical care system and the economy - 2020/04/02
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Urgent Policy Proposals
Priority should be given to fighting the virus,not stimulating the economy
-- Direct spending of 11tn yen to protect livelihoods, businesses
-- Action plans based on prolonged infection are essential
