Japan’s Economic Activity Pummeled by Virus Emergency

(Bloomberg) -- Activity in Japan’s economy took a hammering in April as the impact of the coronavirus pandemic and restrictions under a state of emergency hit demand at home and abroad.

A gauge of Japan’s service sector activity slid to a record low of 22.8, according to preliminary purchasing managers data. The au Jibun Bank Japan purchasing managers index for manufacturing fell to 43.7 in April, indicating the strongest contraction in the factory sector since April 2009. PMI readings below 50 signal activity is shrinking.

The latest grim readout fuels fears over an extended period of stagnation, with global growth expected to remain weak for an extended period. Japan’s exports fell the most in three years last month, and worse numbers are expected to follow.

“PMI data for Japan tell us that the crippling economic impact from the global coronavirus pandemic intensified in April,” said economist Joe Hayes at IHS Markit, which compiles the survey. “The decline in combined output across both manufacturing and services was the strongest ever recorded by the survey in almost 13 years of data collection.”

Analysts see Japan facing at least three quarters of economic contraction as the pandemic paralyzes export markets, scales back production and suppresses consumer spending. Some economists expect the economy to shrink more than 20% this quarter.

The PMI readings are the latest example of the virus impact translating into record lows, according to chief economist Yuichi Kodama at Meiji Yasuda Research Institute. The hit to the service sector reflects the significant slowdown in human movement since the emergency was first declared in early April.

“Firms haven’t completely factored in an elongation of the state of emergency but if this continues this will further hit corporate earnings and will likely strengthen the view that the government’s response so far hasn’t been sufficient,” Kodama said.

Japan still has relatively fewer confirmed cases of the virus than most other countries but case counts have recently topped 11,000 after a state of emergency was declared nationwide. IHS Markit’s Hayes said he expects the state of emergency will be extended beyond the current May 6 end date, given Japan’s lagged response to the virus relative to other parts of the world.

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