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Japan’s economy is set for a deepening recession under the weight of the COVID-19 pandemic. Following the annualized 3.4 percent GDP contraction in the last quarter, the April-June period is forecast to experience a 20 percent-plus decline — the worst in postwar history — as the full impact of the curb on social and economic activities to contain coronavirus infections sinks in.

The state of emergency declared in early April has since been lifted for much of the country except the greater Tokyo area and Hokkaido as new infections have dropped to low numbers. Still, the resumption of economic activity is expected to remain slow as concern lingers over second-wave outbreaks and people are urged over the long term to adopt “new lifestyles” designed to avoid human-to-human contact. There are views that it will take a few years before economic activity returns to pre-pandemic levels.

With the economic downturn likely to be protracted, the key to a subsequent recovery is preventing mass unemployment and bankruptcies, ominous signs of which are already emerging. When the pandemic is finally over, large-scale unemployment will weigh down consumer spending, and business failures will exacerbate job losses and hamper a quick recovery.

Unlike the United States, where the lockdowns amid the pandemic resulted in the loss of more than 20 million jobs in April alone and pushed the unemployment rate up to nearly 15 percent — the worst since the Great Depression of the 1930s — Japan has yet to see a spike in job losses. Still, the number of people with irregular work statuses such as part-timers and temporary staff fell in March by 260,000 from a year earlier. The damage to the job market is expected to grow sharply in the coming months.

People in low-paying irregular jobs are the first to face the ax whenever the economy turns south, as employers use them as cheap and expendable substitutes for regular full-time employees. More than 200,000 irregular workers lost their jobs in the first several months of the global financial crisis following the 2008 collapse of Lehman Brothers.

The ranks of those irregular workers have since increased by more than 4 million to reach some 21.6 million, accounting for nearly 40 percent of the nation’s workforce. The government needs to determine how their employment has been affected by the pandemic and take sustained measures to support those who lost their jobs or had their income reduced.

The pandemic’s damage to jobs is expected to be worse than in the 2008-2009 global financial crisis, with experts and think tanks forecasting that more than 1 million jobs could be lost this year.

When the COVID-19 state of emergency was declared, first in Tokyo and six other prefectures in early April and then nationwide, people were urged to stay home and stores told to either shut down or run on reduced hours. Roughly 80 percent of people employed in the food service industry — one of the hardest hit in the fight against the coronavirus — are believed to be irregular workers. These service sectors have large numbers of small-scale businesses that are feared to be too financially weak to keep their workers on the payroll in tough times.

The damage from the pandemic is being felt across a wide range of sectors. With cross-border travel having ground to a halt, inbound tourism to Japan — one of the few rapidly growing sectors in recent years — declined by 99.9 percent year on year in April, following a 93 percent fall in March. Retail and other service sectors that had increasingly relied on robust consumption by inbound tourists have seen their sales sharply cut.

As the prospect of a prolonged recession deepens, there are bleak forecasts that corporate bankruptcies will rise to the highest levels in seven years. Last week, Renown Inc., a major apparel maker, filed for bankruptcy protection after the pandemic caused its sales to plummet, making it the first listed company to fall victim to COVID-19. With large listed companies already sustaining sharp cuts to their earnings in the year that ended in March and facing bleak prospects for the year ahead, there are indications that many firms will curb their hiring of 2021 graduates.

The administration of Prime Minister Shinzo Abe has taken credit for steady improvements in the job market as a key achievement of Abenomics. Abe himself has pledged to protect people’s jobs and livelihoods as the nation battles the pandemic. The administration needs to follow through on this pledge and stop the recession from turning into yet another employment crisis that causes long-lasting damage.

The Japan Times Editorial Board

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