Jan 06, 2021 (Reuters) - Japan’s likely decision to declare a state of emergency in the Tokyo area will most probably trigger a contraction in January-March, analysts say, adding to the headache for policymakers struggling to cushion the blow to the economy from the pandemic.
The world’s third-largest economy rebounded sharply in the third quarter last year from a record April-June slump caused by the pandemic, heightening expectations a moderate recovery.
But such hopes have been dashed by a resurgence in COVID-19 infections that have forced the government to consider imposing a state of emergency that could last about a month.
Media reported on Monday that preparations were being made for a state of emergency that would take effect by Friday.
While the restrictions will be far less sweeping than those during last year’s nationwide state of emergency, analysts expect them to inflict severe damage on consumption.
Daiwa Institute of Research also expects the economy to shrink in January-March, even though it sees the hit to real gross domestic product (GDP) at less than 1 trillion yen ($9.7 billion) per month - one-third that from last year’s curbs.
In a Reuters poll last month, analysts had expected the economy to expand an annualised 3.9% in October-December last year followed by a 2.1% gain in January-March.
