Japan contraction prior to the coronavirus black swan equates to economic woes

Japan contraction before the coronavirus black swan equates to economic woes

Kanako Itamae and Lee Jay Walker 

Modern Tokyo Times

Prime Minister Shinzo Abe was optimistic that his economic policies alongside the intended increase in tourism and the 2020 Tokyo Olympic Games would enable a rebound. Of course, Abe knew that the sales tax hike from 8% to 10% in October 2019 would impact negativity on the economy for one quarter. However, the economic black swan coronavirus (Covid-19) crisis was unforeseen.

Hence, with tourism reeling and doubts being stated about the 2020 Tokyo Olympic Games, then further negative economic woes will impact on the economy. For example, internal and external disruption to the supply chain; financial markets facing enormous uncertainty; further health care spending; companies downsizing based on various angles to the coronavirus crisis; and other important factors. Therefore, with companies already facing issues related to the sales tax hike, then clearly Japan is facing difficult times because of the coronavirus economic black swan.

Reuters reports, The world’s third-largest economy shrank an annualized 7.1% in the three months through December, revised data showed on Monday, more than a preliminary reading of 6.3% and a median market forecast of 6.6%.”

Unlike other international economic powers, the Japanese central bank is limited by available options to stimulate the economy. After all, the interest rate of minus 0.1% entails that options are limited for the central bank.

Hence, while the Bank of Japan is supporting smaller firms with financial assistance and is likely to announce further measures to support businesses, options are still limited. After all, the current internal and external economic environment is extremely tense. Therefore, real economic maneuvers by the Bank of Japan appear limited given the prevailing conditions outside of the usual policy of government intervention.

Overall, the coronavirus economic black swan certainly threatens to blow away Abe’s economic hopes for 2020.




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