Rupakjyoti Borah

Japan seeking signs of optimism amid dire news for the economy and Olympics preparation

The new year presents Japan with an unique opportunity to recast its economy and move into new and emerging areas instead of depending on traditional sectors

While this year promises to be challenging for its economy, whether Japan can turn the tide will depend on whether it has learned the right lessons from 2020

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A street in Kyoto is virtually empty on December 28. Japan should recast its economy instead of depending on traditional sectors such as tourism. Photo: Kyodo

Rupakjyoti Borah

Published: 10:30pm, 3 Jan 2021Updated: 10:36pm, 3 Jan 2021

The year 2020 was not a good one for the Japanese economy. It was battered by the Covid-19 pandemic, as were many other economies in the region. While Japan’s economy did show some signs of recovery in the third quarter, it seems to be too early for comfort.

The “Go To Travel” Campaign, which was one of the highlights of the government’s strategy to tackle the economic slump following the coronavirus outbreak, has been suspended until January 11 on account of the recent spike in Covid-19 cases. The capital city of Tokyo reported more than 1,337 cases on December 31, setting a record high.

So where does Japan stand in 2021? First, the biggest challenge will be to successfully host the Summer Olympics, scheduled for later this year. There are still many concerns, but Prime Minister Yoshihide Suga pledged in his new year address to continue with the preparations for the Tokyo Olympics and Paralympics.

Second, the tourism sector needs a big boost as it has been badly hit by the pandemic. The local economies of many of the smaller towns in Japan have also suffered. In addition, Japanese companies operating outside Japan have seen their revenues plummet during the pandemic and this has hit their balance sheets.

A poster of the “Go To travel” campaign (bottom right) is displayed in front of a shop near the approach to Sensoji Temple, a famous place for sightseeing in Tokyo, on December 15. The campaign has been suspended on account of the recent spike in Covid-19 cases. Photo: AFP

Third, fraying ties with China are likely to have an impact on the economy as well as China is Japan’s biggest trade partner. Japan-China economic ties seem to be heading for a reset. Japan has allocated 220 billion yen (US$2.1 billion) to firms shifting production back to Japan and 23.5 billion yen for Japanese firms wanting to move production to third countries.

In addition, reports suggest that more than 40 per cent of Japanese firms the government has recognised as “possessing sensitive technology” have already started shifting their supply lines out of China or are considering doing the same. This in itself is a major fallout of the pandemic.