After initial reluctance and following the sudden surge in coronavirus infections, Japan’s Prime Minister, Shinzo Abe, declared a state of emergency on 7 April, covering seven most populated prefectures and accounting for about 44 per cent of the country’s population. The emergency will continue till 6 May. This is the first time that such a declaration has been issued in Japan.

The declaration of an emergency in Japan is not the same as lockdown in other countries as there are legal limitations. A government order that restricts people’s movement is not legally binding on the people. The objective is to ensure better compliance with calls for social distancing. In view of the disruption that the spread of the virus will cause hindering trade and tourism, Mr Abe is aware that the country faces an impending recession.

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He has announced a massive economic stimulus package of nearly $1 trillion ~ equal to 20 per cent of GDP ~ to soften the economic blow. At the same time, he has also announced that the government will suspend $240 billion in tax and social security payments and pay about $55 billion to households whose incomes have been affected by the pandemic. The stimulus package exceeds the equivalent of 11 per cent of the US output laid out by President Trump and 5 per cent of the output for Germany’s package.

Direct fiscal spending amounts to 39.5 trillion yen, or about 7 per cent of the economy, more than double the amount Japan spent following the 2008 collapse of Lehman Brothers. The state of emergency is not a formal lockdown as in other countries. It gives Governors the authority to appeal to people to stay at home and businesses to close. With no penalties for ignoring the requests in most cases, enforcement will rely more on peer pressure and respect for authority. The government has assured the people that there would be no restrictions on buying groceries and medicine.

While trains continue to run, other essential infrastructure like mail and utilities will operate, as will ATMs and banks. There was no sign of disruption to Japan’s grain imports. Though the picture of normality is being projected, certain restrictions even if self-imposed, can aggravate the pain that the virus is inflicting on the country which has begun to experience recession as supply chain disruptions and travel bans have affectedl factory output and consumption.

Tokyo alone accounts for about 20 per cent of Japan’s overall gross domestic product. The government has decided to sell a record amount of additional bonds worth more than 18 trillion yen to fund the package, adding to its huge debt which is twice the size of its economy. While the stimulus could ease the immediate damage from the pandemic, lawmakers are already calling for even bigger spending to prevent bankruptcies and job losses.

Analysts expect the economy, which shrank in the final quarter of last year, to post two more quarters of contraction, piling pressure on the government and the central bank to do more. It is possible that the government will probably compile another supplementary budget soon to stimulate the economy with even more spending. Despite Mr Abe’s bold declaration of the stimulus package, this is no answer to the livelihood crisis.

The package is unlikely to assuage public anxiety, despite the Prime Minister’s admission that the economy is facing the greatest crisis since the end of World War II. Where Mr Abe seems to have erred is that concerns were raised even two months ago over the repercussions of the coronavirus crisis on the Japanese economy, but Mr Abe delayed in taking timely action. Although the economic stimulus package is the biggest ever, in practical terms it does not dispel public concerns.

In particular, the policy of cash benefits for households in need is fraught with problems. Under the emergency package, the government intends to distribute 300,000 yen each to lowincome households and others who have seen their incomes plummet amid the economic downturn triggered by the coronavirus crisis. Since the fiscal 2020 supplementary budget is likely to be enacted in late April, the real cash allowance is unlikely to reach the needy until May or later, thereby failing to serve as a safety net for them.

On the external economic front, Japanese companies have been hit hard with supply chains disrupted. The Abe government earmarked 243.5 billion yen of its record economic support package to help manufacturers shift production out of China. This includes 220 billion yen for companies shifting production back to Japan and 23.5 billion yen for those seeking to move production to other countries.

This move came at an inopportune moment because both Japan and China were looking towards strengthening their friendly ties with the scheduled visit of Chinese President Xi Jinping to Japan, theb first in a decade. That had to be deferred. The outbreak of the virus and the postponement of Xi’s visit were indeed unfortunate. China is Japan’s biggest trading partner, but Chinese imports sank by nearly half in February as the contagion closed its allimportant factories, starving Japanese manufacturers of parts.

There is renewed talk of reducing Japan’s reliance on China as a manufacturing base. The government’s panel on future investment had discussed the idea of shifting the manufacture of high-added-value products back to Japan, and for the production of other goods to be spread across South-east Asia. Elsewhere, Japan’s three biggest automakers cut off pay to 32,000 in North America, thereby swelling the number of workers to an unprecedented crisis, level seeking unemployment benefits.

Toyota Motor Corp. decided not to pay roughly 5,000 people that temporary agencies employ to help staff its idle plants. Honda Motor Co. and Nissan Motor Co. temporarily decided to stop paying its staff at their idle US plants and asked them to apply for unemployment benefits. The position of car manufacturers at home is no better.

Around 20,000 domestic workers at three of Japan’s biggest carmakers have been sent on temporary leave because of the suspension of production, caused by the coronavirus pandemic. The situation in other sectors is equally precarious. It remains to be seen how far Shinzo Abe’s economic stimulus package can help Japan to escape from the impending recession.

(The writer, former ICCR Chair Professor at Reitaku University, Japan, is currently Lok Sabha Research Fellow. Views are personal)