Japan Expands Virus Emergency to Cover 60% of Economy

(Bloomberg) -- Japan expanded its state of emergency beyond the Tokyo region to encompass the country’s other main economic hubs including Osaka, as it battles to contain a record surge in coronavirus cases.

The government is adding seven more prefectures to the existing emergency declaration, Prime Minister Yoshihide Suga told his virus task force on Wednesday.

“We are expanding the designated areas to prevent the expansion of the infection throughout the country,” Suga told a later news conference. He said bars and restaurants in the seven prefectures would be asked to close by 8 p.m. and remote work would be encouraged, in line with rules applied in Tokyo.

An arrangement allowing some business travel from China and other countries will be halted during the period of the emergency, amid public anxiety over mutations of the virus, he added.

Together with the capital and three neighboring prefectures that came under the state of emergency last week, the areas account for more than half of the nation’s output. The expansion would further strengthen the likelihood of the world’s third-largest economy slipping back into reverse this quarter.

Along with the business and manufacturing hub of Osaka, nearby Kyoto and Hyogo prefectures were included. The industrial heartland of Aichi, which is home to Toyota Motor Corp., was added, plus bordering Gifu. The other areas were the prefecture surrounding and including Fukuoka, the largest city in the southern island of Kyushu, and Tochigi, located north of Tokyo.

“There’s no question that the economy will contract in the first quarter,” said economist Hiroaki Muto at Sumitomo Life Insurance Co. “Nobody thinks they can end the state of emergency in a month. It will take at least a full two months.”

The 11 areas account for about 60% of the economy’s total output, according to government data. The emergency in the additional areas is set to start Thursday and end on Feb. 7, in line with Tokyo, Suga said.

Widening the reach of the emergency could fuel criticism the government didn’t start its second state quickly or extensively enough and that its provisions aren’t stringent enough to contain infections. Vaccinations in Japan aren’t expected to start until late February, adding to anxiety over the latest infection wave.

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While the emergency is intended to send a strong message in a country that can’t legally enforce the type of lockdowns seen in other nations, the Tokyo region has yet to see the same level of impact on people’s behavior as during the first declaration last spring.

The number of people moving through business and shopping districts in central Tokyo since the latest emergency was declared is down from a typical year, but the decline is much less than the drop in April during the first emergency, according to an analysis of GPS data provided by Agoop.

Japan has seen by far the fewest infections of any Group of Seven country, recording about the same number of infections in the past year as the U.S. has tallied on certain days in January. Tokyo recorded 1,433 new cases on Wednesday, with 141 people in serious condition.

Yet the surge in Japan is already weighing on sentiment. The mood among merchants and other consumer-facing businesses like taxi drivers slid in December to the lowest since May, a government survey showed Tuesday. The Bank of Japan is also likely to consider cutting its economic assessment for the fiscal year ending March when it meets next week, according to people familiar with the matter.

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Critics have questioned whether the second state of emergency is sweeping enough to contain the spread of the virus. While authorities have introduced lighter restrictions than last year to limit the economic damage, the measures risk sending mixed messages to a public that is struggling with pandemic fatigue. Department stores, cinemas and gyms remain open, while bars and restaurants have only been asked to close after 8 p.m.

Expanding the area covered by the emergency could ultimately reduce the toll on the economy, according to Yuki Masujima of Bloomberg Economics.

“For the first quarter, it will likely drive a deeper contraction in gross domestic product,” Masujima said. “But it could help rein in the virus outbreak faster. That would allow for the restrictions to be lifted sooner -- minimizing scarring.”

Last year, the government expanded the emergency designation to the entire nation shortly after starting with a handful of prefectures including Tokyo. That led to a record economic contraction in the quarter through June. The economy has only recouped about half of its losses so far.

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