At the beginning of the Covid-19 crisis, Japan seemed likely to be one of the countries worst affected by the virus. Proximity to China - the source of the outbreak - combined with densely populated cities and a large elderly population surely made Japan one of the highest risk countries.
Added to this, there was the outbreak on the Diamond Princess cruise liner which was quarantined in Yokohama. The episode drew some criticism over the decision of the Japanese authorities to keep everyone on board initially, as well as the slow pace of testing passengers.
Covid-19's impact: a relative success
However, Japan has – so far – emerged as one of the coronavirus success stories, certainly among developed markets.
As of 8 September, Japan had reported 71,856 cases of coronavirus with 1,363 deaths. This compares to 350,100 cases in the UK, and 41,554 deaths (source: Worldometer). Japan’s population is nearly twice the size of the UK’s, at 126 million compared to 67 million.
The economic impact
Japan has fared better than other countries from an economic perspective too. Japanese GDP declined by 7.8% quarter-on-quarter in Q2, compared to -9.7% in Germany and -20.4% in the UK.
Economist Piya Sachdeva says: “The economic recovery in Japan is underway, though it's far from a V-shape. Strong retail sales showed pent-up demand from households, perhaps helped by cash handouts from the government. That said, this is now losing steam and it is now exports and industrial production that are leading the recovery”.
The Schroders Economics Team forecasts Japanese GDP to contract by 4.6% this year, followed by 3.6% growth in 2021.
The data insights
Our Data Insights Unit has been tracking the Covid-19 crisis around the world and its data shows how Japan has had a very different experience of the crisis compared with other developed market countries.
The charts below show Google mobility data, tracking workplaces, transit and ‘other’ (an average of retail, parks and grocery/pharmacy activity). While Japan did experience a drop-off in activity in all these areas, it was nowhere near as pronounced as the sharp drop seen in the UK when lockdown was imposed on 23 March, or in Germany, where strict social distancing measures were ordered on 22 March.
Part of the reason for this is that Japan did not impose a national lockdown; indeed, the government has only limited power to impose such restrictions. Instead, a series of more piecemeal measures were announced.
For example, on 25 March the governor of Tokyo advised residents from going outside at weekends, following this up on 30 March with an explicit warning against karaoke venues, concerts, bars and nightclubs. A state of emergency was declared in various prefectures – including Tokyo – on 7 April, expanded nationwide on 16 April, and lifted in in stages during May.
The charts below show the stringency and economic importance of various lockdown measures in Japan, the UK and Germany. Darker shades represent greater stringency.
Mark Ainsworth, of the Schroders’ Data Insights Unit, says: “From this, we can see that the UK enacted much stricter stay-at-home requirements than either Japan or Germany. Meanwhile, Japan experienced less stringent workplace and public transport closures.”
This can help explain Japan’s better GDP performance in Q2. However, the higher levels of mobility and less stringent lockdowns seem at odds with Japan’s record of far fewer cases and deaths from Covid-19 than countries such as the UK.
Mark says: “Many observers have pointed to cultural practices such as mask-wearing as an existing norm and greeting others by bowing instead of shaking hands. Japan’s clear communication to the public has also been cited as a very important factor. Public health notices have centred on avoiding the “3 Cs” - Closed spaces, Crowded places, and Close contact - and it appears that adherence to this advice has been high.”
That said, Japan, like much of the rest of the world, may be facing a second wave of the virus, with cases picking up as activity resumes. A campaign to encourage internal tourism has faced opposition as infections began to pick up again in Tokyo.
The fund manager view
Masaki Taketsume, fund manager, Japanese equities, says: “While the state of emergency in Japan involved relatively light restrictions compared with other countries, a higher level of risk aversion within the population meant that observance of the rules was generally higher. Japan also acted very early to take measures such as closing schools.
“Despite this, the population hasn’t given the government a lot of credit for its handling of the virus response. NHK's August opinion poll put the approval rating for outgoing Prime Minister Abe Shinzo's Cabinet at 34%, the lowest since the administration came into office in 2012.
“From a stock market perspective, investors’ immediate concerns as regards the virus will remain on the likely pathway to a rebuilding of global economies and any further dislocation caused by renewed spikes in the outbreak. Japan’s reported virus data remains in a different league to most OECD countries, with domestic concerns focused on outbreaks that are orders of magnitude lower than those seen elsewhere.
“In the final analysis, although all the available evidence suggests that Japan remains far better placed than most countries in dealing with Covid-19, domestic considerations may remain less important for the equity market than the overall global picture.”
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