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Japan economy in 'severe situation' as virus impact causes downgrade

People wearing masks head to work in Tokyo on March 26, 2020, amid the spread of the new coronavirus. (Kyodo)

TOKYO (Kyodo) -- The government downgraded its key assessment of the Japanese economy on Thursday, saying it is "in severe situation" as the coronavirus pandemic wreaks havoc domestically and globally.

    In its monthly report for March, the Cabinet Office did not use the expression "recovering" to describe the domestic economic situation for the first time in over six years.

    "The Japanese economy is in a severe situation, extremely depressed by the novel coronavirus," it said, while revising down its views on seven of the 11 main categories including private consumption and business investment.

    "We are aware that the moderate recovery trend has clearly turned around and (the economy) has entered a downward phase," Yasutoshi Nishimura, minister in charge of economic and fiscal policy, told a press conference after the Cabinet approved the report.

    The report had adopted expressions such as the Japanese economy was "on the way to recovery" or "recovering" since July 2013. In February, the government said the economy "is recovering at a moderate pace, while increased weakness mainly among manufacturers is continuing, as exports remain in a weak tone."

    The government last revised its assessment downward in December.

    "Initially, we especially saw the downward pressure caused by the virus outbreak on consumer spending, but since around February, it has appeared on the supply side, too," a government official told reporters.

    "We can't know whether the impact of the virus outbreak will be only temporary, so we can hardly predict when the situation will change," he added.

    The official noted the pace and the impact of the economic deterioration are almost at the same level as those seen after the massive 2011 earthquake and tsunami that hit northeastern Japan and the 2008 global financial crisis.

    Looking forward, the report predicted the severe situation will remain and warned of "the further downside risks" to the domestic and global economy as well as "the effects of fluctuations" in financial markets across the world.

    In the report, the government gave a bleaker assessment of the situation surrounding private consumption for the first time in about three years as the virus epidemic, which started late last year in the central China city of Wuhan, has forced many events to be canceled, with people increasingly unlikely to go out.

    Supply chains have been disrupted mainly due to the suspension of economic activities in China and other regions, which made the Japanese government downgrade corporate profits and business sentiment, saying they are "in a weak tone" and "deteriorating," respectively.

    Assessments of other categories such as public investment, imports and the employment situation were also grim, while those of exports, industrial production and the expected number of bankruptcies remained unchanged, the report said.

    The Japanese economy shrank an annualized real 7.1 percent in the October-December period as the sales tax hike in October dented consumer spending.

    The virus epidemic could cause the nation's economy to further contract in the January-March period and send it into a technical recession, defined as at least two consecutive quarters of declining gross domestic product.

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