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Japan’s economy has contracted significantly, and it will take time to fully recover.

Japan's economy has contracted significantly, and it will take time to fully recover.

People wearing face masks walk in Tokyo's Ginza area on Feb. 7, 2021, amid the coronavirus pandemic. (Photo by Kyodo News via Getty Images)

Preliminary statistics released by the Cabinet Office of Japan on the 15th showed that Japan’s real gross domestic product (GDP) fell by 4.8% in 2020 due to the impact of the coronavirus pandemic.

Although Japan’s economy continued to rebound in the second half of last year, economists generally believe that it will take time for Japan’s economy to return to pre-pandemic levels.

According to the data, domestic demand dragged down the Japanese economy by 3.8 percentage points last year, and external demand dragged down the economy by 1.0 percentage points.

Analysts said that China and other major Japanese export markets recovered quickly to avoid a greater decline in the Japanese economy.

In addition, Japan’s GDP rose 3% month-on-month in the fourth quarter of last year.

Compared with the previous quarter, Japanese enterprise equipment investment and housing investment turned from decline to rise, and the growth rate of exports also accelerated, but the growth rate of personal consumption, which accounted for half of the Japanese economy, slowed down.

At the beginning of 2020, the pandemic made Japan’s economy, which had begun to decline, worse. In the first two quarters of last year, Japan’s economy continued to shrink.

In the third quarter of last year, with the rapid recovery of export markets such as China, Japan’s foreign demand rebounded rapidly, and the Japanese government’s introduction of a series of fiscal and financial stimulus policies, Japan’s economy recovered.

Japanese media and economists generally believe that although Japan’s economy grew month-on-month for two consecutive quarters in the second half of last year, due to the continuation of the pandemic, the market is facing high uncertainty, and the momentum of economic recovery is weak, and it is difficult for the economy to recover to pre-pandemic levels.

Since January 2021, Tokyo and other prefectures have entered a state of emergency again. The government’s consumption stimulus measures such as travel and dining out before the pandemic rebound were forced to stop, and domestic consumption was suppressed again.

Many economists even predict that Japan’s economy may return negative growth in the first quarter of this year.

In addition, there is some uncertainty about whether the Tokyo Olympic Games can be held this year.

Mitsubishi Japan Union Morgan Stanley Securities Company predicts that the cancellation of the Olympic Games will reduce Japan’s GDP by 0.7% in 2021.

Taro Saito, director of the Economic Survey Department of the Japan Institute of Life Foundation, believes that in addition to the insufficient momentum of economic recovery, the increase in business closures caused by the pandemic and the decline in residents’ income have also damaged Japan’s economic foundation.

It may take years for Japan’s real GDP to return to the level before this round of economic downturn (the third quarter of 2019).

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