COVID-19 and Japan's status of economy

Written by Erich Ahorner June 11th 2020

What is the impact of COVID-19 on Japan?

After an initial spike in daily new cases of COVID-19 to 724 on April 12, and the announcement of a nationwide state of emergency shortly after, cases dropped to 30 daily cases end of May and have remained on a low level.

Japan seems to have successfully contained the first wave of COVID-19. How did Japan's government manage to limit the death toll to only 826 until end of May 2020 despite the proximity to the SARSCoV2 origin in China?

Of course Japan had a state of emergency in effect that was lifted end of may and also restricted (and still is restricting) entry from foreign countries like many other nations.

But it might also have other reasons like the way Japanese socialize on a daily basis.

Shaking hands or giving hugs is not part of Japanese culture. In public you will barely see people in close contact, and even for couples it does not go further than holding hands in public. Wearing masks is another point. It was always part of Japanese culture to wear a face mask if you had a cold or similar symptoms out of respect for others. So a virus spread might be easier to contain with these cultural habits compared to countries where a closer proximity between people is regarded as natural, and individualism where your own needs have priority is a stronger part of the culture.

Some other reason might be the way infections with SARSCoV2 are reported. Individual testing procedures and guidelines in different countries to declare a case a "COVID-patient" or "COVID-death" might also lead to discrepancies. It is a good measure to use all data published by the WHO with caution and awareness of its limitations.

How has the situation affected the economy?

Japan's economy has suffered as everywhere else in the world. A negative GDP growth rate of -2% for the first quarter of 2020 vs the previous year was the result.

The Japanese government response to the economic downturn was to approve a massive extra budget to financially support individuals and businesses with a total of 234 trillion JPY (approx. 2.2 trillion USD) which is about 40% of Japan's GDP. As a reference, the US issued 2 trillion USD by end of May, 2020. Only 10% of its GDP.

What is the main keyword for the global economy in 2020?

Until today we cannot say how exactly the virus works, and if a second wave of the pandemic is coming or not.

But looking closer at the world economy the word "Uncertainty" already was around before the pandemic. Maybe as a result of the US-China trade conflict or the Brexit process. In any case, we are in times where we have to expect the unexpected.

The keyword in order to minimize the risks that come along with uncertainty:

Businesses need to become more resilient in their operations, offer more resilient products and services, AND strategically choose resilient markets.

As already mentioned, Japan has shown to be among the most resilient countries in this pandemic. Besides the death toll that is relatively lower, Japanese businesses have a higher confidence in the economy than other industrialized countries.

Also, the Japanese healthcare system was never under the same pressure as in many other countries.

Is Japan going back to business as usual?
We all know that the answer is no.

The biggest component of Japan's "New Normal" will be a Digital Transformation.

This of course was already part of the outlook of Japan's economy, but it never was as urgent as the pandemic has made it.

The economy of Japan deals with a lot of paper work even 20 years into the 21st century.

For example, it is still common for companies to use fax machines. Another example is that for approval processes a 稟議書 (ringisho) or circular form is used where each step up to the top management (for big projects) has to place his or her "personal seal" on the paper for the project to be approved.

This personal seal is also needed for identity verification at banks, for social benefits, insurances, taxes etc.

Business associations urge the government to digitalize administrative procedures like these to legitimize official documents.

This procedure is also one reason many office workers do no not feel comfortable working from home. But this is not the only reason.

Since work officially has a higher status in Japan than family (you only have a family because you have a job in the first place) there is a very strong sense of obligation to show up in the office no matter what. Co-workers are perceived as a second family and it is not rare that even private issues are discussed with them (but only after work with drinks). Not being in the office and not having face to face meetings with colleagues, means not being part of the family.

The term "Remote work" or "telework" has existed in Japan like anywhere else, but was never broadly accepted even in tech firms due to this cultural background.

But the Japanese government has officially recommended work from home to reduce the crowds in public transport especially in metropolitan areas of Japan.

Therefore a lot of companies are now considering how to digitalize their operations to make working from home as efficient as from the office. The US and Europe are more advanced in this aspect since remote work was more part of the economy in theses regions.

Another change the government made through the Ministry of Health was in the healthcare system. By now telemedicine was not allowed for the first visit, but this restriction has been lifted due to the pandemic and is a big change for Japan.

So the pandemic has forced the Japanese government not only to talk about Digital Transformation, but to actually make changes and make things happen.

The introduction of 5G network technology (which expansion the government promotes with tax benefits) and the commencement of 6G discussions will further push Japan's Digital Transformation.

Japan has lifted the state of emergency and companies are increasing their business activities again. It has shown the resiliency of the country in crisis situation in general, but especially in this pandemic. Of course the impacts of the Coronavirus cannot be neglected, but will have to be embraced and are already embraced, leading to a Digital Transformation in Japan.

Who will be the driver of this Digital Transformation?
Of course Japanese companies and the government will be key players in this process, but that is not all. There are new innovative technologies and services out there by non-Japanese businesses and Japan is looking those foreign businesses to be part of its transformation.

Is your business ready to be part of it?

Erich Ahorner

Erich Ahorner helps people enter the Japanese market and grow their businesses. He is an expert at helping people with market entry using online and offline methods and trying to break down necessary steps to make things simple to understand. If you're interested in growing your business or entering a new market to and increase sales then definitely reach out and request a free strategy session today.