The world has transformed with the expansion of the coronavirus — what will happen to Japan’s economy? We will analyze the impending risks.

As of September 8, the number of bankruptcies in Japan related to the coronavirus hit 500. According to the Nikkei, 100 domestically listed restaurants are forecast to close more than 1,000 stores (as of the end of July). Amidst the dull outlook, there is a vague sense of expectation that consumer demand will be back up once the infection subsides.

“I want to believe that consumption will return once a vaccine is developed,” said a shopping district chairman in Setagaya-ku, Tokyo. “Until then, I’d like the government to compensate for our lost sales.”

Vaccine development typically takes several years. Even if research is taking place at a rapid pace, we should expect that it will take some time for a vaccine to be developed.

Furthermore, the Japanese government doesn’t have the capacity to disperse money. Government debt, which is the sum of federal and local debt, has reached more than double Japan’s GDP at 1,182 trillion yen ($12.5 trillion). The Japanese government’s finances are on the verge of a financial catastrophe.

Japan’s Economy Will Not Come Back

While it is true that respective industries have begun to resume operations and the economy seems to be reopening, many companies are in a difficult situation.

This is visible in capital raising during the pandemic. A number of companies, such as those in the automobile and airline industries, are raising capital through loans and corporate bonds. The lack of capital reserves so far is unprecedented, and a tightness of cash flow is evident. Capital shortages are bound to result in companies being at risk of bankruptcy.

According to Teikoku Databank’s September data, Japan’s economy is on a recovery trend, but it is expected to remain flat with an extended period of low consumption.

After the Lehman shock, it took nearly 10 years for the unemployment rate to return to normal. The scale of this crisis is large compared to the Lehman shock – a return to pre-coronavirus conditions may take over 10 years.

A ‘New Lifestyle’ Halts 70% of the Economy

The coronavirus directly impacts two industries: the manufacturing industry, which accounts for about 25% of GDP, and the service industry, which accounts for 70% of GDP. When people crowding becomes a problem, factories cannot operate and productivity drops. This serious issue is also affecting the service industry, or the tertiary industry. Economic activity in this sector is carried out when people come into conduct with one another, so the service industry cannot operate if regulations are enforced by administrative guidance. Among them, the Japanese government’s method of appealing to a redistribution policy is superficial.

Even after the coronavirus pandemic ends, the Japanese government is demanding that every industry thoroughly implement a “new lifestyle” under administrative guidance – this is the main cause of lower economic productivity.

In the lecture, “Economics with Human Warmth,” Happy Science CEO Master Ryuho Okawa said, “The existence of human beings is not easily defeated by the coronavirus…Our original selves are greater.” He also suggested to people to “take off your masks with ‘courage,’ take off your face shields with ‘courage,’ have the ‘courage’ to sit next to people and regain a society where people can speak with each other once again.” We can reopen 70% of the economy only once this is accomplished.

If a “new lifestyle” is intended to maximize infection prevention measures as a result of the state of emergency, then we need to be careful about the following: “If you keep launching the same policies as that of an emergency declaration, up to 700,000 bankruptcy cases are forecast to arise next year.” (There were approximately 8,400 bankruptcy cases in 2019.)

The Japanese government doesn’t have the financial resources to relieve that many bankruptcy cases, and businesspeople should be prepared that the “the government will not pay the price of self-restraint”, nor bail them out. In others, “we must protect our own jobs.”

*Estimated by Teikoku Databank in June 2020.