Falling virus cases an upside risk this quarter

Our forecast for a 1.5% q/q fall in consumption in Q1 rests on the assumption that some businesses in virus hotspots will be forced to close in order to contain Japan’s most severe wave of the pandemic yet. But signs that new infections may already have peaked suggest that the current light-touch measures may be enough. While that presents upside risks to our near-term forecasts, there are two caveats worth noting. First, mobility data suggest that consumers have become far more cautious in their behaviour. Public transport usage hasn’t recovered much from its New Year slump while visitors to retail & recreation locations are at their lowest since May. (See Chart 1.) That suggests that consumer spending may fall this quarter even without tighter restrictions. Second, the fall in daily cases over the past week may overstate actual improvements on the ground: testing delays around New Year led to a statistical spike in positive tests reported in early January. And the previous spike in daily cases is consistent with a significant rise in the number of severe cases and deaths, so the medical system is likely to come under further pressure.