Vaccines should limit Delta damage

While infections are now rising sharply nationwide – particularly in Tokyo where the Delta variant has the strongest hold – most of the vulnerable population are now fully vaccinated so we doubt restrictions will have to be tightened any further. Admittedly, the current state of emergency only active in Tokyo (19% of GPD) could be extended to other areas. But most major urban areas are already under quasi-emergency measures. Declaring a full state of emergency – where measures are only slightly more draconian – wouldn’t be a major additional drag. And the mobility data suggest states of emergency hurt economic activity progressively less each time they are declared. Moreover, there are already signs that vaccines are weakening the link between cases, hospitalisations and deaths. That makes sense given that 62% of those aged over-65s are now fully vaccinated. The vaccination rollout remains rapid, with the government well on course to hit its target of fully vaccinating all adults who want the jab by end-November. As such, we still expect most domestic restrictions to be permanently lifted from late-Q3 onwards which should enable the economy to get back to its pre-virus level before the end of this year.