Japan Economics

What would a lockdown mean for Japan’s economy?

Japan Economics Update
Written by Marcel Thieliant

Tokyo Governor Yuriko Koike is mulling a lockdown for the capital in response to a rise in coronavirus cases. Taking into account the composition of Tokyo’s economy, we estimate that a lockdown in the capital would reduce national output by 5% for as long as it lasted.

  • Tokyo Governor Yuriko Koike is mulling a lockdown for the capital in response to a rise in coronavirus cases. Taking into account the composition of Tokyo’s economy, we estimate that a lockdown in the capital would reduce national output by 5% for as long as it lasted.
  • The number of coronavirus infections in Tokyo jumped from 96 a week ago to 163 today and estimates by Japan’s Health Ministry suggest it will reach more than 500 by 8th April. Tokyo Governor Yuriko Koike said today that if other prevention measures fail, a lockdown of the capital may be necessary.
  • We doubt that a lockdown is imminent, not least because the government is about to re-open schools. Even so, it’s worth considering what it would mean for the economy. Tokyo prefecture accounts for 19% of Japan’s GDP. If we include the surrounding six prefectures that comprise the Greater Tokyo Area, that figure rises to 41%. (See Chart 1.)
  • The impact of a lockdown on economic activity depends on what share of employees would be able to work from home. A 2018 survey by the Japan’s government found that just 19% of firms had launched “telework”, while another 7% had plans to do so. Among those firms that had not introduced remote working, 56% thought the nature of their work wouldn’t allow them to do so. But a lockdown would surely force firms to seek ways to work remotely as much as possible.
  • We suspect that Tokyo would be hit a little less hard by a lockdown than other parts of the country. Manufacturing and construction would almost certainly come to a complete standstill during a lockdown, but manufacturing accounts for just 9% of output in Tokyo, much less than the 24% in the rest of Japan. (See Chart 2.) Construction accounts for around 5% of GDP in Tokyo and elsewhere. The share of other services, where online working is presumably possible for most employees, is larger in Tokyo at around 61% of output compared to 49% elsewhere.
  • That said, Tokyo’s Achilles heel is the large reliance on wholesale and retail trade. This sector accounts for a much larger 20% of GDP in the capital compared to just 11% elsewhere. Admittedly, wholesale accounts for the bulk of that in the capital. Around 30% of wholesale transactions were conducted online in FY2018, the latest year for which data are available. But that still means that the majority of transactions are conducted offline. And in the retail sector, online sales account for just 6% of total sales. What’s more, health and social activities are a smaller share of activity in the capital than elsewhere. That sector may well see rising output due to efforts to combat the coronavirus outbreak.
  • All told, we estimate that a lockdown in Tokyo that limits activities outside one’s home to essential services would knock off around 5%-pts from national GDP. So if it lasted for just four weeks, the impact on national GDP would be less than 2%-pts, but if it lasted for a whole quarter it may knock off as much as 5%-pts. The impact would be twice as large if the Greater Tokyo Area were shut down and larger still if there were knock-on effects to activity in other prefectures.

Chart 1: GDP by Prefecture (2016,% of GDP)

Chart 2: GDP by Sector (% of total)

Sources: Cabinet Office, Capital Economics

Sources: Cabinet Office, Capital Economics


Marcel Thieliant, Senior Japan Economist, +65 6595 1514, marcel.thieliant@capitaleconomics.com

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