Japan is helping its post-Covid economic recovery with a further easing of virus-related restrictions, a move that’s expected to aid a growth trajectory that has been slower than its peers.
(Bloomberg) — Japan is helping its post-Covid economic recovery with a further easing of virus-related restrictions, a move that’s expected to aid a growth trajectory that has been slower than its peers.
Following a string of national holidays in early May, Japan lowered its classification of Covid-19 to the same level as seasonal flu on Monday. The shift, flagged at the beginning of the year, will boost the economy by as much as 4.2 trillion yen ($31.2 billion) or around 0.75% of gross domestic product, according to Hideo Kumano, executive economist at Dai-Ichi Life Research Institute.
Kumano cites improved productivity, higher domestic consumption and returning foreign tourists among factors that will drive the extra growth. He significantly boosted his projections from his January estimate of a 1.4 trillion yen gain to reflect the greater-than-expected recovery in inbound visitors.
Amid continued fears of a global economic downturn, Japan’s slower recovery and delayed border opening could help shelter it from an overseas slowdown.
Tourism data suggest that about 1.8 million foreigners visited Japan in March, nearly 30 times more than a year earlier and around two-thirds of pre-Covid levels. The still weak yen and relatively lower levels of inflation in Japan are drawing in tourists, while the government also brought forward the end of its border control measures to the end of April.
The virus downgrade is also likely to increase productivity as stay-at-home requests are lifted for those infected or in close contact with people with Covid. An earlier relaxation of mask-wearing recommendations in March already appears to have encouraged more people to go out for leisure and dining. Activity in Japan’s service sector rose to the strongest in almost a decade in March.
Japan only narrowly avoided a recession at the end of last year, and economists have become steadily more pessimistic about the global economic outlook as central banks around the world continue to hike interest rates. The reading for Japan’s first quarter is set to be released next week.
Still, steady recovery in consumption gives some hope for the Japanese economy amid recent global slowdown fears, said Takashi Masuda, an executive economist at Toray Corporate Business Research.
“Unlike other countries, Japan is still in the process of getting back to normal from the pandemic,” said Masuda. “Thanks to resilient consumption and inbound demand, Japan has less risk of a downturn compared with other countries.”
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