Japan’s decision to declare another Coronavirus induced state of emergency could devastate many businesses that are already on their last legs as it is. The state of emergency will directly affect Tokyo and other three prefectures neighbouring the capital. Small and medium enterprises will majorly take the brunt of this decision.
Research findings from the renowned Tokyo Shoko Research Ltd show that 100 companies have become insolvent moving into 2021. In the initial weeks of the new year, over 892 enterprises have declared bankruptcy due to the prevailing pandemic’s extensive effects. Most businesses crumbling in the heat of economic meltdown are mostly in the hospitality and travel industry.
There are operators who were braving the economic tide by adapting their businesses to web-based operations and as a result, remained viable in the current market. The second declaration of a state of emergency at the heart of Japan will, however, take the wind out of sails of businesses trying to get by.
Why a Second State of Emergency Would Be Worse
After the first wave of infections and the stringent control regulations by the government, containment measures were seemingly working efficiently. With the prospects of a vaccine on the horizon, the new year started with such promise, but it seems things have to get worse before getting better.
According to Takeshi Niinami, the current president of Suntory Holdings Ltd, the non-regular workers in Japan have the short end of the stick and desperation is driving people to the very edge. Suicide rates are at an all-time high, and something has to give. Takeshi voiced the sentiments of most people who feel that an emergency declaration is a premature decision. But what would be the best timing for such action?
Takeshi Niinami’s apprehensive statement represents the general mood in Japan’s economic landscape. He projected that the adversity would last for a couple of months, probably up to March, before the economy shows signs of a resurgence. He also pointed to a glimmer of hope in the rapid distribution of the vaccine once it is cleared and the opportunity presented by the Tokyo Olympics and Paralympics to be held in August. However, the government would have to aid businesses through a relief program to jumpstart the economy.
Likelihood of Chain Bankruptcies
The Private Credit Research Agency released a report warning of chain bankruptcies likely to happen in the first quarter of 2021. The agency’s experts stated that many companies would hit rock bottom even if they were to be financed due to declining sales volume. Soon, company partners would opt to start collecting receivables from the struggling businesses in a bid to cut losses.
Such efforts would accelerate the number of bankruptcies filled in a limited time. It’s worrisome to see that even sectors that looked formidable like the Macau gambling industry, which stands as the biggest casino centre globally, is also unstable. Casino revenues in Macau decreased dramatically in 2020, and gaming operators hoped 2021 would be the year to start the recovery process.
Another economics specialist from the SMBC Nikko Securities Inc., Junichi Makino, advised that Japan’s annual gross domestic product would decline to a tune of ¥3.8 trillion if the imposed emergency declaration would be upheld for a single month. The loss would be much less than that caused by the first Covid19 state of emergency in 2020, but the cumulative effect to businesses would be drastic.
Such economists agree that relief fund organized by the government to revive the economy should focus more on the hardest-hit companies, especially in the hospitality industry. The future should also be prioritized to ensure such devastation on the economy can be mitigated in case of another emergency.
The Widening Emergency Virus Declaration
After the initial emergency declaration on January 6, affecting Tokyo and three prefectures, another decision to extend the restriction to seven other prefectures has just passed. This now affects over half of Japan’s population.
No one anticipated that the new wave of infections would escalate this fast. Businesses continue to suffer as restrictions widen with the latest declaration suspending fast track entry granted to business visitors. The new containment measures will be enforced until the first week of February before review.
Despite the short term and long-term effects, these restrictions will have on Japan’s economy they are necessary to curb the spread. The aim is to protect smaller cities and satellite populations from big cities with higher infection rates. All anyone can hope is that the vaccine gets here soon enough for normalcy to resume.
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