Mises Wire

Japan Has Avoided a COVID-19 Panic. But the Global Recession Will Hit Hard

The number of COVID-19 cases in Japan had been showing a very low daily uptick until this past week. Suddenly, there were more than forty new cases a day, and the news is reporting that for most of those people the route of infection cannot be determined. The governor of Tokyo Koike Yuriko has been teleconferencing with the governors of surrounding prefectures (such as Kanagawa (Kawasaki and Yokohama), Chiba, and Saitama) to hammer out a plan for social distancing in the metropolis.

Koike is under enormous pressure to get the balance just right. The coronavirus outbreak comes just as the Japanese economy, which has limped along since the bursting of a government-induced financial bubble in the early 1990s, is showing signs of giving up the ghost altogether. An article in the Sankei Shimbun newspaper (a conservative financial daily) from Friday, March 27, reveals that the Japanese government’s carefully worded monthly economic report for March does not contain the key term kaifuku (“recovery”). This is the first time the word has been missing from the monthly report in almost seven years. If Koike shuts down Tokyo, which comprises an economy larger than that of many countries, it would throw the Japanese economy into disarray and produce many negative repercussions across this region and the world.

But doing too little to contain the virus would also be disastrous, both from a public health perspective and for Koike politically. (Koike was touted a couple of years ago as possible prime minister material.) This month, March 2020, marks nine years since the Fukushima triple-disaster of 2011, when an earthquake and tsunami led to explosions and massive radiation leaks at a nuclear plant along the Pacific coast. TEPCO, the politically-connected power company which manages the plant, has been roundly criticized for its (mis)handling of the aftermath. If Koike were to prioritize the economy over public health, or even be perceived as doing so, it would have serious repercussions for her own career, for her party, and for Prime Minister Abe Shinzo.

Indeed, Abe’s legacy is already on the rocks, as the coronavirus and now the delay of the Tokyo Olympics by at least a year are sounding like a death announcement for Abenomics. Abe attempted to pull off what no government anywhere has ever succeeded in doing: spend its way out of a recession. After assuming the prime minister mantle for the second time eight years ago, Abe tapped Kuroda Haruhiko to head the Bank of Japan and together they flooded the Japanese economy with fiat currency. This sent the yen plummeting against the dollar, and whatever domestic gains were obtained against the rising cost of imports were offset by the consumption tax increases that were the inevitable result of reckless quantitative easing. Recently, the consumption tax was raised again, to 10 percent from 8 percent, right before the coronavirus hit. Japanese exports also continue to struggle, as competition in top-end electronics from South Korea and Taiwan cuts into Japan’s brand share overseas. As a last resort, Abe had been courting tourists from China and South Korea and even went so far as to invite Xi Jinping, the Chinese dictator widely reviled in Japan as a buffoonish despot, as a state guest. There are hardly any Chinese or South Korean tourists in Japan now, and whatever hopes Abe might have pinned on a warming relationship with China (and with the pro-China leader of South Korea President Moon Jae-in) now seem irreparably dashed.

But all of this seemed somehow remote until just a few days ago. Japan made headlines at the outset of the coronavirus pandemic when the Diamond Princess cruise ship remained docked at Yokohama. After all of the passengers had been repatriated, the news focus shifted to the outbreaks in Italy, Spain, South Korea, and the United States. We watched the world supposedly fall apart, but it was pretty much business as usual here. Shops had remained open, and we were all looking forward to hanami, going out to parks to view the beautiful cherry blossoms which are a high point of each year.

The Japanese academic year starts in April, so late winter is our “summer break.” Abe issued guidelines last month requesting that schools around the country cancel the last week or so of classes so kids could stay home for even longer. (Unofficial polls conducted by this correspondent reveal Abe’s approval rating to be at an all-time high among ten-year-olds.) Most schools complied, and due to a stoic determination in the face of crisis learned over long years of experience with sudden changes in fortune—coupled with probably the most thorough handwashing and general hygiene culture in the history of the world—Japan held fast and the virus was at bay.

Japan has an excellent health system, a culture of not panicking and kicking in when times are hard, and a free and open press that allows for rapid dissemination of accurate information. We are in good shape. Folks wear masks all the time anyway (to avoid colds, to keep pollen away during hayfever season, and to protect others when sneezing and coughing), and even during bad flu outbreaks the packed trains in Tokyo somehow aren’t the breeding grounds for infection that one would expect in other parts of the world.

We seem to be turning into the same gale that has beset so many other places around the world. But whatever happens with the virus, the real story, the real historical change, is probably economic. Abenomics seems to be dead. Prime Minister Abe’s career may be over, as it will be very difficult for him to avoid association with Xi Jinping. QE is failing here, just as it always will everywhere. A reliance on tourism and consumption cannot conceal the structural problems with the economy overall. Public debt is increasing, and taxes keep going up. Two lost decades are shading into three. Something else will have to be tried, because Keynesianism is spectacularly not working. (You have to give the Keynesians credit (no pun intended)—like coronavirus, they never die.)

And keep an eye on constitutional reform. One bright ray of hope in all this is that Japan may yet revise “its” constitution (actually imposed by New Deal radicals in 1947) to regain full sovereignty and control over its self-defense forces. Those self-defense forces acquitted themselves beautifully nine years ago, saving countless lives in Fukushima and Iwate alongside the US military in Operation Tomodachi. I look for true Japanese recovery to come from that fighting spirit of volunteerism. If the desire to protect Japan from within can finally bubble up to the level of constitutional politics, then the coronavirus may very well be remembered as a good turning point for us here.

Image Source: Wikimedia
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