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COVID Downgrade Tipped to Boost Japan Economy by ¥4.2 tril


Japan’s downgrade on Monday of the legal status of COVID-19 will likely deliver the Japanese economy a 4.2 trillion yen boost, driven in part by an increase in the number of inbound tourists, according to an estimate by a private sector economist.

The coronavirus is now treated the same as the seasonal flu, with the government relinquishing its legal authority to ask those who have tested positive to stay in hospital or to quarantine. Japan has already reopened its doors to foreign tourists after enforcing a stringent antivirus border control regime.

Of the 4.2 trillion yen estimated economic boost, Hideo Kumano, executive chief economist at the Dai-ichi Life Research Institute, said more than half, or around 2.6 trillion yen, would come from a revival of inbound tourism. Some 1.1 trillion yen would be generated by increased productivity as people will be less frequently kept away from work under the new guidelines.

Close contacts are no longer asked to quarantine and it is up to each person testing positive for COVID-19 to decide whether to stay home, even though the government recommends such people refrain from going outside for five days.

The return of people who would otherwise have felt compelled to stay home due to COVID-19 and pent-up demand for travel and dining out are expected to boost the world’s third-largest economy.

Economists predict overseas visitors who enter Japan will spend more due to the weaker yen that has made traveling and the buying of goods cheaper for those with foreign currencies.

Japan has seen prices of goods rising in recent months but its level of inflation remains subdued as compared to the United States and other advanced economies.

“Foreign tourists and other visitors have extremely strong purchasing power,” Kumano said, noting that Japan will likely see a return of Chinese group travelers. He adds spending per visitor will increase by around 30 percent from pre-COVID levels.

Before the pandemic, Chinese tourists made up a large portion of foreign visitors to Japan.

Japan’s economy narrowly escaped falling into a recession in the last quarter of 2022.

So far, rising prices of everyday goods have yet to seriously curtail consumption due to the pickup in demand from lows seen during the COVID-19 shock.

Economists at SMBC Nikko Securities see much room for private consumption to recover and believe expansion will likely continue through 2025.

Source: Japan Today