Soft or hard lockdown policies in a global pandemic? A deep dive analysis of COVID-19's impact on the Japanese economy

Abstract

Governments worldwide have struggled with effective policy responses to the COVID-19 pandemic and the potential threats posed by the pandemic to economic and public health. The rapid mutation of the virus into numerous variants further exacerbated the policy puzzles faced by governments, health officials, and medical scientists. This study investigates the macroeconomic policy implications of the Japanese government's response to the COVID-19 pandemic using an exploratory data analysis (EDA) framework. The analysis compares Japan's COVID-19 statistics with those of selected OECD member countries as well as the economic implications of Japan's COVID-19 policy response, focusing on households and businesses. The results indicate that compared to selected OECD member countries, confinement measures and behavioral changes kept Japan's COVID-19 transmission rate low. In addition, less stringent measures, such as intermittent state of emergency and voluntary stay-at-home policies adopted by the Japanese government, appear to have paid off. Public debt increased, wages fell moderately, unemployment rose moderately, and private consumption slowed, but recovered quickly in the last quarter of 2020. Crucially, expansionary fiscal stimulus to both households and businesses staved the worst effects of the pandemic. The evidence points to post-COVID-19 economic recovery policy measures that ensure direct and robust government funding to SMEs, attractive investment climate to accumulate private capital, and investment in digital economy transformation that encourage and pave the way for hybrid working system.