The Econ-versation: No sign of relief for Japan’s economy

Silvia Buonocore, Senior Writer

Japan’s economic growth dropped drastically by 6.3 percent in the final quarter of 2019, from October to December, surpassing the expected decline of 3.9 percent. The drop was mainly driven by a large decline in private consumption following an increase in the national sales tax from eight percent to 10 percent on Oct 1. Economic growth was further harmed when, days after the implementation of the sales tax increase, Japan was hit with Typhoon Hagibis.

The Japanese economy was also suffering negative impacts as a result of China’s slowdown, as it caused a decrease in Japanese exports to China. Now, with the recent coronavirus outbreak, there are fewer signs of economic prosperity for Japan.

Japan’s economy continues to weaken, and the negative effects are expected to persist through this quarter. Consumption is projected to decline as well as the tourism industry, which is taking a large blow from the outbreak. Due to these factors, Japan risks having a recession — defined by a decrease in economic growth for two consecutive quarters.

The Lunar New Year provided hope for a boost to Japan’s economy; however, with a Chinese ban on group tours during the holiday, Japan saw fewer sales than expected. The dismal outlook for Japan does not end here: according to the Japan Association of Travel Agents, it is predicted that around 400,000 travelers from China will cancel travel plans through by the end of March.

With the largest source of tourism in Japan coming from China at over 30 percent, declines in travel will continue to harm Japan’s economy. Not only do the Chinese make up the largest percentage of tourists in Japan, but they are also large consumers of Japanese products when visiting as the Chinese try to avoid high taxes and knockoff products in China. Even Japanese companies operating in China have been temporarily shut down due to the outbreak.

Some economists are recommending fiscal expansion — a decrease in taxes or an increase in government spending — to help the Japanese economy.

The coronavirus is shaking other economies as well. In Germany, some are suggesting government spending to boost the economy, and in Malaysia, the government plans to implement a stimulus package amidst threatening factors.

While the coronavirus has the potential to impact the entire global economy, Japan faces dire consequences due to the country’s proximity to China and the significant economic relations between the two countries. Furthermore, since Japan is the world’s third-largest economy following the United States and China, a Japanese recession has the potential to impact other countries.

Information originally appeared in The New York Times and The Wall Street Journal.

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