Tokyo, Hyogo and Kyoto are soon expected to join Osaka in asking the central government to declare a third state of emergency. While together those four prefectures only generate a third of national output, the experience during the second state of emergency suggests that such declarations will depress consumer spending nationwide. And with Osaka Governor Yoshimura targeting more draconian measures – such as business closures – than under the third wave to counter the UK-variant-driven fourth wave, we now expect consumer spending to flatline this quarter after a 1.5% q/q fall in Q1. That said, consumption should pick up rapidly in the second half of the year as the vaccine rollout accelerates. Japan is scheduled to have enough vaccine doses for all over-65s by end-June and for the entire adult population by end-September. Getting the vaccine into arms may take a little longer but we assume most of the vulnerable will have received jabs by Q3 and expect most restrictions to be lifted then.
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