Japan’s Economy Likely to Feel the Chill From Coronavirus

The China coronavirus has grabbed the headlines, as the outbreak has severely disrupted China’s economy and rocked markets worldwide. The virus has spread to at least 17 countries, including the United States. Countries in South East Asia and the Pacific are also feeling the economic bite, but it is the Japanese economy, the third-largest in the world, that investors are most worried about.

The Japanese economy is enjoying its best run since 2012, but remains fragile. Inflation is low and domestic demand remains soft. Analysts have warned that the economy could hit hard by the outbreak, and Japan’s GDP could lose be dragged down by as much as 0.45%, or some $22 billion, if the virus is not quickly contained. Japan’s tourist industry could be devastated by the outbreak, as 30 percent of tourists to Japan are from China. The repercussions are already being felt in the tourist and services sectors, as China has banned all tour groups from traveling abroad.

In addition to tourism, other sectors could feel the pain as well. According to Takahide Kiuchi, executive economist at Nomura Research Institute, “falls in private spending by Japanese consumers, a slowdown in companies’ manufacturing activities and the global economy” are all factors which could damage the Japanese economy.

The timing of the coronavirus is particularly bad for the Japanese economy, which has lost steam due to a new sales tax which was introduced in October. The tax has dampened consumer spending and could result in a contraction in GDP in the fourth quarter, after a respectable gain of 1.8% in the third quarter. The trade war between the U.S. and China, which is still in effect, has hurt Japanese exports. If the virus continues to spread, the Japanese recovery could be in peril.