Japan’s economy shrank in the first three months of 2021, continuing a swing between growth and contraction as its plodding vaccination campaign threatened to stall its recovery from the pandemic even as other major economies appeared primed for rapid growth.
In the year or so since the coronavirus emerged, Japan’s domestic demand has experienced cycles of shrinkage and expansion, as coronavirus cases have risen and consumers have retreated indoors, and as infections have then dropped and businesses have welcomed customers back.
Currently, Japan is suffering a resurgence in virus cases, with much of the country under a state of emergency and deaths climbing, especially in Osaka. The yo-yoing economic pattern, analysts said, is unlikely to stop until the country has vaccinated a significant portion of its population, an effort that has just begun and seems unlikely to speed up significantly in the coming months.
That dynamic could potentially push the country back into recession — defined as two consecutive quarters of contraction — later this year, as it struggles to check the spread of deadlier and more contagious coronavirus variants.
largest blow to the economy since 1955, when the country first began to use gross domestic product to measure its growth.
Even so, the pandemic’s effects on Japan have been relatively mild compared with the havoc wreaked on the United States and many European countries. Japan has never gone on full lockdown, and total deaths remain under 12,000.
Those factors, combined with — by some standards — the world’s largest stimulus measures, have kept the country’s unemployment rate low and have propped up many small businesses such as restaurants and hotels.
While Japan’s pandemic response has managed to blunt the worst of the economic damage, recovery will continue to be an uphill battle, said Tomohiro Ota, a senior economist at Goldman Sachs in Japan.
Trade has rebounded in recent months as some countries have reopened, but “without a consumption recovery, we cannot go back to the pre-Covid days,” he said.
Progress toward that goal has been a matter of taking two steps forward and one back. Consumption at home has come in waves, cresting and receding as case numbers wax and wane.
Japan’s state of emergency last spring devastated domestic demand as people bunkered down at home. Consumption bounced back briefly over the summer and fall. A second state of emergency, in January, was followed by a similar rebound.