The two-week extension of the state of emergency in Tokyo and three neighboring prefectures might cause a 0.7 trillion yen drop in consumer sending, according to executive economist Takahide Kiuchi of Nomura Research Institute Ltd.
The state of emergency for Tokyo, Chiba, Kanagawa and Saitama prefectures is expected to last 2-1/2 months due to the latest extension. As the region accounts for 30% of the nation's gross domestic product, the impact on consumer spending and employment is expected to become even more severe.
The fall in consumption since the second state of emergency was issued in January has expanded to 6.3 trillion yen, close to the 6.6 trillion yen loss during the about six-week emergency period issued in spring last year.
The impact on this year's GDP will worsen from a 0.99% decline to a 1.12% decline. The re-extended emergency is also expected to cause a rise in unemployment to 249,000, 30,000 more than previously forecast.
Sales in the restaurant industry fell 21% nationwide in January from the same month last year. "Some companies were preparing for the lifting of the ban by restocking inventories and securing staff. But now that the ban has been extended, they will be forced to take further measures," said an official of the Japan Foodservice Association.
Japan Travel and Tourism Association President Minoru Kubota said, the situation "is extremely severe, but, for people to be able to move around with peace of mind, at the very least, the state of emergency will have to be lifted."
In the future, calls for additional economic measures will possibly grow stronger within the ruling bloc.
Consumer spending will remain sluggish for some time, even after the state of emergency is lifted, as cautious behavior has taken root," Kiuchi said.
Shinichiro Kobayashi, a senior researcher of Mitsubishi UFJ Research and Consulting Co., believes there is room for consumption to expand as household savings have increased due to people exercising restraint in their daily lives.
He predicted that if the government lifts the state of emergency in two weeks as scheduled, it would be able to take advantage of the demand from the Golden Week holidays and "put the economy back on a recovery track."
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