Chapter 3 Changes and Business Opportunities Brought to the Japanese Market by COVID-19
Economic Activities Declined in April and May in Japan
- Trends in the number of new infections per 100,000 population in Japan shows that the first expansion of infections started late March and continued to mid-April. Although the number of new cases declined toward mid-May, the increase was observed again, starting July.
- In view of the spread of COVID-19 in Japan, the government issued a state of emergency on April 7th. In light of the state of domestic infections, the state of emergency was expanded nationwide in mid-April, before lifted from all the prefectures on May 25th . To combat the impacts on the economy due to COVID-19 and associated containment measures, the government also created a supplementary budget twice.
Number of New Cases of COVID-19 in Japan
〇 Indicates daily infections and the graph indicates the trend of daily infecions.
Who (as of Nov. 5th, 2020), United Nations
Changes in State of Emergency Declaration
|04/07/20||7 Prefectures||A state of emergeny was declared for seven prefectures in the Kanto, Kansai, and Kyushu, for a period from April 7 to May 6.|
|04/16/20||47 prefectures||To prevent the nationwide spread of infections during the consecutive holidays in May, a state of emergency was declared for all 47 prefectures until May 6.|
|05/04/20||47 prefectures||The state of emergency declaration for all prefectures, which had been until May 6, was extended until May 31. The government to review the period by May 14.|
|05/14/20||8 prefectures||Reviewing the status of infections and medical systems, the state of emergency declaration was lifted in 39 prefectures, excluding eight prefectures in Hokkaido, Kanto, and Kansai. The government to review the status of the remaining eight prefectures around May 21.|
|05/21/20||5 prefectures||The state of emergency declaration was lifted for the three prefectures in Kansai. The government to review the status of the remaining five prefectures Hokkaido and Kanto, in the following week, around May 25.|
|The state of emergency declaration was lifted for the remaining five prefectures in Hokkaido and Kanto.|
- Indexes of domestic industries illustrate business activities declined in various fields between April and May, during which the state of emergency was declared. The Indices of Industrial Production show that the production index declined for the fourth consecutive month from 99.8 in January 2020 to 78.7 in May of the same year. The production indices fell below 80.0 for the first time since February to March 2009.
- The Indices of Tertiary Industry Activity show the overall index of the service industry, which was 101.9 in January 2020, dropped to 86.4 in May of the same year. The index in May 2020 was the lowest comparable since January 2008.
Trends in Industrial Production Indices
The chart shows "Total" and the five largest industries by weight.
"Indices of Industrial Production"(METI)
Trends in Tertiary Industry Activity Indices
The chart shows "Total" and the give largest industries by weight.
"Indices of Industry Activity"(METI)
Despite Negative Impacts on Majority Domestic Companies, Investment in Digital Continues
- COVID-19 has been influencing the business operations of many companies in Japan. According to the Business Outlook Survey, business conditions for enterprises declined significantly in the second quarter of 2020. The assessment of the business conditions in the third quarter of 2020 shows that conditions have picked up for companies of all size.
- Although the overall investment has been declining, investment in the digital field, in which demand is further rising with COVID-19, is expected to increase. According to the Regional Economic Report published by the Bank of Japan, in many regions, demands for 5G, automation, and labor saving as well as online shopping and telework continue, and plans for expansion of investment in digitization have been reported.
1) % point is calculated by adding the percentage of companies answering their business condition is "rising" compared to the previous quarter minus that of those asnwering "falling.
2) Q4 of 2020 is an outlook.
"Business Outlook Survey" (Cabinet Office/MoF)
Examples of Digital-Related Investments
|Region||Industry Sector||Voices of Businesses|
|Hokkaido||Construction||To eliminate the chronic shortage of human resources, the company will continue to make ICT-related investments. In the future, it will actively make related investments toward the full-scale introduction of telework.|
|Tohoku||Retail||The company is reviewing its investment plans by reducing store facilities amind the COVID-19 crisis while strengthening digital-related investments in response to a growing demand for e-commerce.|
|Hokuriku||Textile||Because of the increasingly challenging business environment, it is the time to improve productivity through aggressive labor-saving investment, such as automation of inspection processes and introduction of information systems to indirect departments.|
|Kanto, Koshinetsu||Transportation machinery||Due to deteriorating earnings, we have halved the investment amount for this fiscal year from the initial plan. Nevertheless, since it is essential to develop products that respond to new technologies to stay competitive, we will continue to invest in R&D.|
|Tokai||Production machinery||We have streamlined capital investment projects to secure cash reserves and decided to reduce them compared to the previous year. However, we will maintain R&D expenditures on 5G-related and manufacturing machinery for utilizing AI as before.|
|Kinki||Chemicals, electrical machinery||We will continue to make capital investments and R&D investments in the areas with medium- to long-term growth prospects as planned.|
|Chugoku||Information and communication||As cloud services continue to expand over the medium to long term, the volume of data communications will continue to increase in the future, reflecting the spread of telework and other factors. Therefore, we are expanding our data centers.|
|Shikoku||Lodging||As a measure against the COVID-19 infections, we have introduced a system to measure congestions in restaurants and bathrooms using AI and provide the information to guests.|
|Kyushu, Okinawa||General-purpose machinery||Despite the uncertainty with the future, we do not plan to revise our capital spending plans at this time, given the continuing strong 5G-related demand.|
- In the midst of digitalization advancing in various forms in order to reduce the contact with other people, work from home attracted the attention in the world. According to the Tokyo Chamber of Commerce and Industry, only 26.0% of the companies conducted telework as of March 2020, but the response rate increased by more than 40% in the May to June survey to 67.3%.
- While continuing operation of telework is expected in the future, its sustainable operation entails challenges. Business development of foreign-affiliated companies that address issues of remote work is expected, as seen in the case of Asana, which provides an online platform for work management.
Implementation Rate of Telework
"Emergency Questionnaire on the implementation Status of telework" (Tokyo Chamber of Commerce and industry)
Issues Related to Telework
|Improvement of infrastructure environment||According to a survey conducted by the Tokyo Chamber of Commerce and Industry, more than half of the 732 companies that introduced telework for employees faced challenges in "improving the network environment" (56.7% of the total) and "securing devices such as PCs and smartphones" (55.9%).|
|According to a survey conducted by the Tokyo Chamber of Commerce and Industry, 55.5% of the 732 companies that introduced telework cited "internal communications" as a telework issue. Also, according to a survey of 500 teleworkers conducted by Persol Research and Consulting in May to June 2020, 32.2% of respondents, the most frequent response, had communication concerns, saying that "non-face-to-face interactions make it difficult to understand other party's feelings."|
|Progress management of operations||According to a survey of 700 managers who have been managing teleworking staff since before December 2019, 46.3% pointed out "occasionally feeling uneasy due to the difficulty of monitoring work progress." According to a survey of 500 teleworkers conducted in May to June 2020, the second-highest 31.4% had "concerns for fair evaluation from superiors."|
|Document check and seal-affixing||According to a survey by Adobe, of the 500 business persons who experienced telework, 64.2% of the respondents had to go to the office for document checks or affixing seals. According to a questionnaire survey conducted by the Tokyo Chamber of Commerce and Industry, 49.9% of the 732 companies that operated telework cited "affixing seals to documents" as an issue. In particular, the response rate was high among enterprises implementing telework since before April 2020.|
|To ensure security||50.9% of the 732 companies surveyed by the Tokyo Chamber of Commerce and Industry and 50.5% of the 210 SMEs surveyed by the Osaka Chamber of Commerce and Industry cited security concerns as an issue.|
Digitalization of Consumption Observed amid COVID-19
- Motivation of consumption significantly declined due to COVID-19 and associated government measures to contain the virus. The Consumer Confidence Index for April 2020 was 21.6, the lowest since comparable data was first recorded in June 1982. The indices of the four components of the overall Index marked the lowest. Although the Index has shown recovery since May, the recovery slows down when the number of new infections increase in the country.
Trends in the Consumer Confidence Index
"Consumer Confidence Survey" (Cabinet Office)
- The expansion of the COVID-19 infections has led to an increase in the number of consumers refraining from going out, which has led to a sharp increase in online consumption of goods and services worldwide. Consumption by households shows an increase in spending online.
- According to a domestic survey, an increase in the use of cashless payments that enable contactless payments has been observed. The Japanese government aims to raise the share of cashless payment (by value), which was 26.8% in 2019, to around 40% by 2025 and to 80% in the future.
Trends in Internet-based Expenditures
"Survey of Household Economy" (Ministry of Internal Affairs and Communications)
Trends in Domestic Cashless Payments