The Bank of Japan recently announced that it had downgraded its assessments for all nine regional economies for the second straight quarter. This move is a result of businesses facing a huge blow in all sectors due to the pandemic. According to the central bank’s quarterly Sakura Report, regional economies have “deteriorated significantly” or have remained in “severe situations” since the last quarterly report in April.
Another crisis that Japan has faced is recent floods in the southwestern and central parts of the country, which has also negatively affected the economy. The bank has vowed to closely monitor the impact that they have received from the floods and try to maintain financing systems as well as settlements.
The bank’s tankan survey concluded that business sentiment from large manufacturers had decreased to -34 in June this year. For comparison, the last time it was this low was June 2009.
According to Tokyo Shoko Research, Japan faced a spike of 780 bankruptcies in June — a rise of 6.3% from June 2019. However, a contributing factor to this number could be pandemic lockdowns, as the courts accepted a limited number of bankruptcy applications during emergency lockdown. The number of bankruptcies in May was the lowest since 1964.
The service industry, which specializes in hotels and restaurants, had the largest increase in bankruptcies at 24.1%. Large-scale bankruptcies have also increased during the pandemic, with total liabilities increasing by 48.1%.
Ever since the national lockdown lifted in May, Japan’s household spending plunged to a record 16.2% compared to 2019. This is due to requests to work from home as a way to maintain social distancing guidelines.
However, the decline reached a peak unseen since January 2001. According to the Ministry of Internal Affairs and Communications, May’s drop follows April’s 11.1% drop, setting another record for the second consecutive month.
During the lockdown, leisure activities such as eating out and attending events shrank in number. The monthly spending cost for a two-person minimum household is currently $2,300, down for the eighth consecutive month since October 2019.
The pandemic has taken a considerable blow to the world’s third-largest economy. With the travel ban still in place for over 100 countries, it will take a long time for things to go back to normal. Tourism significantly impacts the Japanese economy, and with the Olympic Games postponed to 2021, they have faced extra damage and loss of money.
Japan has announced that it will slowly ease travel restrictions for business travelers coming from Vietnam, New Zealand, Thailand, and Australia. However, this move will not fully reverse the country’s economic damage.
Decreased movement from locals due to the spike of cases in major cities such as Tokyo and the flooding that has destroyed homes in the southwestern and central parts of the country has affected the nation’s businesses, as well.
About the Author
Luigi Wewege is the Senior Vice President, and Head of Private Banking at Caye International Bank. Outside of the bank, he serves as an Instructor at the FinTech School which provides online training courses on the latest technological and innovation developments within the financial services industry. Luigi is also the published author of: The Digital Banking Revolution.