NIRA OPINION PAPER
No. 57 | May 2021

NIRA OPINION PAPER
No.57 | May 2021

Characteristics and Issues of Japan’s
Response to COVID-19- An International Comparison Yuri Okina

Executive Vice President, NIRA
Chairperson, The Japan Research Institute, Limited

In 2020, the world economy was struck by the unprecedented crisisof the COVID-19 pandemic. Japan's response to the pandemic has been
comparatively successful when considered from an international perspective,
and has reduced the nation’s mortality rate. At the same time, it must be
said that it has also highlighted serious structural issues in Japanesesociety.
Based on an international comparison, the most important issues
to be addressed can be seen to include comprehensive review of the systemof medical care and the cultivation of readiness for emergency responses.
In addition, the important issues from the perspective of ensuring
economic security are the enhancement of vaccine development, flexible
responses with regard to the various regulations associated withvaccination, and focused and flexible government expenditure with clear
priorities based on data analysis and a vision for the future of Japanesesociety.
Moreover, responses to the expansion of public debt and widening
economic disparities due to COVID-19 will be important policy measures
for the future. With regard to these issues, it will be necessary to review
factors including the tax system and the direction for procurement ofgovernment finances from the perspective of reducing disparities.

Copyright Ⓒ 2021 by Nippon Institute for Research Advancement
This is a translation of a paper originally published in Japanese. NIRA bears full responsibility for the translation
presented here.

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The Importance of Viewing Japan from an International Perspective*
In 2020, the world economy was struck by the unprecedented crisis of the COVID-19
pandemic. How does Japan's response compare to the rest of the world? In this paper, I willconduct an international comparative analysis of the responses to COVID-19 mounted in 2020
by Japan and developed nations throughout the world using a variety of data, and discuss thepolicy issues that we must consider at this moment, when there is still no sign of a resolution of
the pandemic situation. Japan's response to the pandemic has been comparatively successfulwhen considered from an international perspective, and has reduced the nation’s mortality rate.
At the same time, it must be said that it has also highlighted serious structural issues inJapanese society. Based on an international comparison, the most important issues to beaddressed can be seen to include comprehensive review of the system of medical care and thecultivation of readiness for emergency responses. In addition, the important issues from theperspective of ensuring economic security are the enhancement of vaccine development, flexible
responses with regard to the various regulations associated with vaccination, and focused andflexible government expenditure with clear priorities based on data analysis and a vision for the
future of Japanese society.
Moreover, responses to the expansion of public debt and widening economic disparities
due to COVID-19 will be important policy measures for the future. With regard to these issues,
it will be necessary to review factors including the tax system and the means of procuring
government finances with a focus on reducing disparities, the best type of social safety net, andthe relationship of these with monetary policy.

1. The COVID-19 Pandemic and National Economies
More than a year has passed since the outbreak of COVID-19. Vaccination has
progressed in some developed nations, but the virus continues to spread, and we have not yet
reached the stage of resolution of the pandemic situation. Up to the present, in NIRA Opinion
Papers No. 52 and 54, we have looked at the responses to COVID-19 in Sweden and Germany,nations which are deploying distinctive policies 1 . Since then, the situation has diverged
significantly among different nations, with some facing severe difficulties as a result of thepandemic, and others moving towards a resolution of the situation. What is Japan’s current
status, and what specific stance towards the issues has the nation adopted? Based oninternational comparison with other developed nations, in this paper I will delineate thecharacteristics and issues of Japan’s COVID-19 response for approximately one year in Japan,
using data including GDP data up to the fourth quarter of 2020 (October-December; termed 4Q)
for each nation as a guide, and attempt an evaluation on this basis.

* The data analysis was conducted by Kozue Sekijima of NIRA.

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(1) Relationship Between Mortality Rate and Economic Damage
COVID-19 affects economies in terms of both supply and demand. First, when
emergency COVID-19 responses such as lockdown or the declaration of a state of emergency
were put into effect, intercity movement for purposes such as tourism and eating out and othersocial activities were directly suppressed, and the demand for related services that require faceto-face contact was itself reduced. This sharp decline in service consumption is an
overwhelmingly significant factor in the economic damage suffered by major nations. In addition,
there is a psychological aspect; it is quite possible that factors including population decline due
to an increase in deaths, decline in income due to the deterioration of the employment situation(for example, in the area of service-related employment), vigilance with regard to infection,
increased anxiety and the worsening of the economic outlook, may result in a decline inhousehold consumption and corporate investment, among other factors. On the supply side, on
the other hand, productivity may be reduced due to the suspension of operations at certain
factories and the implementation of measures against COVID-19 in the workplace. Based on
this perspective, I would like to consider the relationship between Japan's response to COVID19 and economic recovery in the nation, while also looking at benchmark indicators.
First, looking at the number of COVID-19 cases and deaths per capita, figures for Japanare vastly lower than figures for Western nations. In particular, Japan’s mortality rate (the ratioof the number of deaths to population) is low, and this may be seen as a result of the nation’s
measures to control the spread of the virus. The data allow us to confirm that the mortality ratesof Western nations such as the United Kingdom, Italy and the United States are high, and thoseof Asian nations are low (Figure 1).
Figure 1 International trends in mortality rates
Italy
United Kingdom
United States
FranceSwedenGermany

CanadaMarch 2020

May 2020

July 2020

September 2020

November 2020

January 2021

March 2021

Japan
South Korea
China
TaiwanNZ
May 2021(Source) Formulated by NIRA based on data from the COVID-19 Data Repository by the Center for Systems
Science and Engineering (CSSE) at Johns Hopkins University
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Giving consideration to the extent to which the total number of deaths exceeds thenumber prior to the pandemic, termed the "excess mortality rate," the impact of the pandemic
in relation to the total populations of Japan and Taiwan is consistently low, despite thelimitation represented by the unavailability of data in recent months (Figure 2). In April 2020,
the number of deaths in the United Kingdom exceeded 100% compared to the previous year,
and the number of deaths in the United States and Sweden was also high in 2020. In the caseof Japan, the number of excess deaths increased by about 8% compared to the previous year at
the end of 2020, but overall, the number of deaths due to other diseases such as influenza
decreased due to thorough compliance in masking and hand washing. The major trend cantherefore be indicated as a number of deaths about the same as the average year, with noparticular effect as a result of the pandemic in terms of the total population.
Figure 2 Comparison of the number of deaths exceeding the average for the past five
years in each nation considered

United Kingdom

United States

GermanyJapan
TaiwanSwedenMarch 2020

June 2020

September 2020

December 2020

March 2021

（Note）Shows the difference from average mortality figures for the period from 2015 to 2019.
（Source）Formulated by NIRA based on “Excess mortality P-scores” as calculated by Charlie Giattino, et al,from The Human Mortality Database, The World Mortality Dataset.

Is the number of deaths caused by COVID-19 affecting economies? Looking at a
possible negative correlation between the COVID-19 mortality rate and the rate of change innominal GDP up to the 4th quarter of 2020 for IMF member nations, we find a figure of -0.22.
It therefore cannot be concluded that there is an explicit correlation (Figure 3). Italy and Spain
have high mortality rates, and the economic downturn in these nations is also significant, whichsuggests a negative correlation. However, despite the fact that their mortality rates are also
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high, the economic downturns in nations such as the United States and Sweden have been low
by comparison. Overall, Asian countries display lower mortality rates than Europe and theUnited States, and the level of damage to Asian economies has tended to be low. This is also
true for Japan; Taiwan and South Korea have lower mortality rates, and have curbed any
economic downturn.
Figure 3 Economic downturn in IMF member nations(year-on-year comparison of nominal GDP in 4Q, 2020) and mortality rate (4Q)

Italy
Spain

UK US
SwedenSouth Korea

x
China

Japan

Taiwan(Note) Nominal GDP data is employed due to the fact that real 4Q GDP figures cannot be obtained fornumerous IMF member nations. n = 42.
(Source) Formulated by NIRA based on IMF “International Financial Statistics” and the COVID-19 Data
Repository by the Center for Systems Science and Engineering (CSSE) at Johns Hopkins University(2) Impact on Economies Due to Decline in Consumption of Services
1) International Comparison of Economic Damage
Global economic growth fell sharply in the first quarter of 2020 (1Q) due to the spreadof COVID-19. Following this, the world economy began to recover, but the infection spread again
in the winter, causing a deadlock in recovery. In 2021, efforts towards vaccination are
accelerating throughout the world, and it is expected that economic recovery will proceed
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successively from the countries that have vaccinated first.
In comparing GDP in each country, because methods of estimation of deflators, etc. are
not unified, both real and nominal GDP data were employed. In addition, in order to evaluate
the degree to which GDP has returned to pre-COVID levels, the average period of recovery fromthe second quarter (2Q) to the fourth quarter (4Q) of 2020 (excepting the severely affected firstquarter of 2020), was compared with the fourth quarter of 2019 (4Q) (Figure 4).
First, looking at trends in the economies of the developed nations (G7 nations andSweden), it can be seen that decline in consumption accounts for the greater part – 70% to 80%- of the total decline in GDP. Considering individual nations, the UK, Italy, and France displayed
the most significant declines. The UK's final consumption expenditure shows the status of
decline in nominal rather than actual terms, due to the fact that the government’s method of
estimating the medical and educational deflators for final consumption expenditure is different
from those of the other nations considered2.
The figures show that the decline in Japan is minor among the developed nations, andJapan’s economic damage is the second lowest after Sweden, which did not impose a lockdown.
Figure 4 Rate of increase and decrease in 2Q - 4Q 2020 actual and nominal GDP
compared to 4Q 2019 by demand component(Source) Formulated by NIRA based on Cabinet Office, “National Accounts: Quarterly Estimates of GDP for Oct.-Dec.
2020, (The Second preliminary Estimates)”, Statistics Sweden, “GDP Quarterly 1993–2020: 4”, UK Office for
National Statistics “Quarter 4 (Oct to Dec) 2020, quarterly national accounts.

2) Economic Impact of Time Spent at Home
It has been said that Japan's policy response to the pandemic was more relaxed thanthose of other developed nations, and the stringency index for Japan’s policy measures is in fact
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low (Figure 5-①), and the time spent by Japanese people at home was also short (Figure 5-②).
A scatter plot of the stringency index and time spent at home for the 125 nations for which data
could be collected showed a fairly low positive correlation of 0.52, suggesting that policy coercion
tended to lengthen the amount of time spent at home (Figure 5-③).
Figure 5 Stringency index for policy measures, degree to which people stayed at home,
and their correlation for each nation considered① Stringency index

China
Germany
SwedenUnited Kingdom
United States
Japan

TaiwanMarch 2020

June 2020

September 2020

December 2020

March 2021

(Source) Formulated by NIRA based on Thomas Hale, et al (2021), “A global panel database of pandemic
policies (Oxford COVID-19 Government Response Tracker).”② Degree to which people stayed at home

United Kingdom
Germany
SwedenJapan

United States
TaiwanMarch 2020

June 2020

September 2020

December 2020

March 2021

(Source) Formulated by NIRA based on Google LLC, "Google COVID-19 Community Mobility Reports".

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③ Correlation between time spent at home and stringency of policy measures(Source) Formulated by NIRA based on Thomas Hale, et al (2021), “A global panel database of pandemic
policies (Oxford COVID-19 Government Response Tracker)” and Google LLC, “Google COVID-19
Community Mobility Reports.”

There is a negative correlation of -0.79 between the time spent at home in advanced
nations and the rate of change in real GDP (average for 2020) (Figure 6). The leniency of therestrictions imposed by the national government and local governments in Japan suggest thepossibility that the degree of change in people's behavior has been minimal, and that direct
suppression of economic activity may have been lower than in other countries. The economic
downturn has also been small in Sweden, which did not impose a lockdown.
Taiwan has had a lower stringency index than Japan for almost an entire year, and thetime spent at home there is almost the same as it was before the pandemic. As a result, Taiwan’s
economic downturn has been minor. As we can see, this international comparison suggests that
if government-mandated measures are relatively lenient, time spent at home will be short, or,even if there are restraints on behavior, if these last only for a short period of time, the impact
on areas such as tourism, eating and drinking, and transportation, which are based on face-toface service consumption, may be small. Digitalization is progressing in developed nations, and
it is possible that employment can be maintained at home by digital means and the consumptionof everyday items can be maintained through e-commerce. However, in Britain, where the ratioof face-to-face services in consumption is high, the fact that stringent lockdown measures have

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NIRA OPINION PAPER
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been applied for an extended period suggests the possibility that they may have significantly
damaged the nation’s economy.
Figure 6 Time spent at home and GDP growth rate

TaiwanJapan
New ZealandSouth Korea
SwedenGermany

Australia

United States
CanadaFrance

Italy
United Kingdom
United Kingdom

Spain(Source) Formulated by NIRA based on and Google LLC, “Google COVID-19 Community Mobility Reports,”
Cabinet Office, “National Accounts: Quarterly Estimates of GDP for Oct.-Dec. 2020, (The Second
preliminary Estimates)”, and OECD, “Quarterly National Accounts.”(3) Medical Care System and Economic Recovery
The major issue that can be pointed to in Japan’s system of medical care is the fact thatits ability to accept severely ill patients is lower than that of the medical care systems in Western
nations. While the number of patients either infected with or severely ill with COVID-19 is low,
there is a lack of ICUs able to provide critically ill patients with ventilators and extracorporeal
membrane oxygenation (ECMO), and the system will soon be under pressure. This problem may
prolong the economic stagnation associated with the COVID-19 crisis and delay future economic
recovery. In addition, the fact that delays in vaccination are becoming conspicuous in comparison
to other developed nations is a major cause for concern in relation to future economic recovery.
1) Increase in Number of Severely Ill Patients and Trends in Mortality Rates
As mentioned above, Japan has a low number of deaths from COVID-19. However,looking at the case fatality rate, calculated by dividing the number of deaths due to the virus by
the number of infected people, we find that while the rate was previously low compared to othercountries, it has more recently leveled off following a slight increase, and since March 2021, theCopyright Ⓒ 2021 by Nippon Institute for Research Advancement
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NIRA OPINION PAPER
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figure has been basically equivalent to that of the U.S. (Figure 7). It is possible that lying behind
this slight increase in the ratio of deaths to the number of infected people in Japan is, in addition
to the fact that there are numerous cases among elderly people who are prone to serious illness,that the medical care system is prone to come under pressure as the number of severely ill people
increases.
Figure 7 Ratio of number of deaths to number of COVID-19 cases in advanced nations(Case fatality rate)
United Kingdom

Case fatality rate (%)

Spain

_

World
United States

GermanyJapan

March 2020

June 2020

September 2020

December 2020

March 2021
2020

(Source) Formulated by NIRA based on the COVID-19 Data Repository by the Center for Systems Science andEngineering (CSSE) at Johns Hopkins University

Looking at changes in the number of severely ill patients in Japan, in January at theheight of the third wave, the number of the severely ill exceeded 1,000. Following this, thenumber gradually decreased, but before returning to its level prior to the third wave, the fourthwave arrived and the number rapidly exceeded the previous level (Figure 8). On the other hand,the number of deaths has changed in tandem with the trend in the number of severely ill people,
and has begun to increase again since the beginning of April. Here, I will venture to look at thetrend in the ratio of the number of deaths divided by the number of the seriously ill. It can beseen that during the third wave, the proportion of fatalities among the severely ill increased.
Until then, it had been in the range of 2-8%, but during the third wave, it increased to a level of
14-16% all at once. We cannot determine the reason for this, but it is possible that the pressure
on the medical system had some effect. A delay in the provision of appropriate treatment
increases the risk of death. In order to minimize the number of victims of COVID-19, we must
control the increase in the number of the severely ill, thus avoiding pressure on the medical
system.

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NIRA OPINION PAPER
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Figure 8 Number of deaths and severely ill patients due to COVID-19 in Japan,
and ratio between them2020/82020/102020/12 2021/1

2021/32021/5(Note) The number of deaths is a moving average for 7 days.
(Source) Formulated by NIRA based on the Ministry of Health, Labor and Welfare website “Status ofDomestic Outbreaks, etc.”

2) Examination of the Causes of Pressure on the Medical System ... Essential Number of ICUs for BaseLevel Functioning of Medical Care System, Flexible Bed Conversion, Securing Doctors, Inter-Regional
Cooperation, Inter-Hospital Cooperation, IT Implementation
A variety of factors can be considered as possible reasons for the potential pressure on
the medical system in Japan.
To begin, there is the problem of the level of establishment of ICUs in the first place. In
Germany and the United States, the number of ICU beds accounts for a significant percentage
of all beds (OECD statistics show figures of 8% for Germany and 7% for the United States).
Because the figure for Japan is only 2%, it is expected that if the number of seriously ill patients
increases, there will be immediate pressure on the system. In Japan, the number of beds per
1,000 people is high at 13.0, but the number of ICU beds is overwhelmingly low at 5.2 beds per
100,000 people (Figure 9).

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Figure 9 Number of beds and ICU beds in each nation considered

Germany

United States

FranceCanadaUnited Kingdom New ZealandAustralia
Spain
Italy
Japan
South Korea(Source) Formulated by NIRA based on OECD (2020), "Beyond Containment: Health systems responses
to COVID-19 in the OECD" and "Health at a Glance (2019)".

With regard to international comparison of the number of ICU beds, it has been pointed
out that figures for Japan are underestimated due to differences in definition with othercountries. However, the number of ICU beds per 100,000 people in Japan is about 13.5 beds
according to data calculated by the Ministry of Health, Labor and Welfare, even if ICU and highcare units for patients of an intermediate severity level are included. This is less than half ofGermany's 29.2 beds3.
As of the end of April, Germany had more than 30,000 ICU beds for a population of 84
million, and there are still about 10,000 vacant spaces (Figure 10). The number of ICU beds inGermany indicated here does not represent beds devoted exclusively to the treatment of COVID19, but the total number of ICU beds in the country. It is said that a quarter of these will beallocated for COVID-19 treatment; if the figure is converted for a population the size of Tokyo’s(14 million), it would represent about 1,250 ICU beds dedicated to COVID-19 treatment. This isan order of magnitude higher than the number of beds in Tokyo. However, the number of ICUs
in Germany includes beds for relatively mild oxygen inhalation, which makes a strict
comparison with Japan difficult.

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Figure 10 Number of ICU beds in Germany(Source) Formulated by NIRA based on DIVI “Intensivregister”

The second set of factors related to ICUs are flexible bed conversion, inter-regional
cooperation, inter-hospital cooperation, and flexible allocation of doctors. The status of COVID19 infections varies significantly from region to region. It is therefore essential to ensure thereadiness of medical systems at both national and regional levels. Looking at changes in thenumber of artificial respirators that can be accepted and the status of use of artificial respiratorsin Tokyo and Osaka based on data available from the ECMOnet site, it can be seen that thesituation differs completely depending on the region (Figure 11-①, ②). The situation in Osaka
Prefecture as of early May was extremely serious, and there was no leeway with regard to ICUs
able to conduct treatment using artificial respirators. Since mid-April, the number of deaths has
been increasing, and controlling the number of deaths due to COVID-19 is the highest priority.
In Sweden, state-led interregional cooperation was implemented flexibly, and this has been
important. In Tokyo, it seems that there is some leeway in the number of ICU beds, but, as
mentioned above, the level of ICU provision is low when considered internationally.
Furthermore, in Germany, 10,000 ICUs have been added since August 2020, a monthin which the situation reached emergency levels, in order to respond to COVID-19, and beds arebeing converted and added to bring the number to the level of 40 beds per 100,000 population(see Figure 10 above). Considering the factor of medical professionals, in Germany, there aremany doctors who are trained and able to respond flexibly to ICU conditions. Based on this
discussion, it is clear that there is an urgent need in Japan to flexibly secure a greater number
of ICU beds, to build a system that enables flexible conversion of beds, and to enable the flexible
placement of doctors.
It goes without saying that pressure on the medical system in Japan’s regions is an
issue that must be avoided because it increases the mortality rate and in addition causes
significant damage to the economy as a result of the issuing of emergency declarations andrequests for restrictions on behavior.

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Figure 11 Number of artificial respirators in use in Japan and number able to be accepted(① Tokyo)February 2020

April 2020

June 2020

August 2020

May20212021
October 2020 December 2020 February 2021 April 2021March(② Osaka)

February 2020

April 2020

June 2020

August 2020 October 2020 December 2020 February 2021 April 2021 May 2021

(Source) Formulated by NIRA based on ECMOnet data concerning Japan’s COVID-19 response

Another reason that the medical system might come under pressure is differences inthe entities operating the hospitals. In Japan, the ratio of private hospitals is 81.6% and theratio of private beds is 71.3% (Ministry of Health, Labor and Welfare Medical Facility Survey,(2019)). A comparison of this figure to the ratio of private beds in the EU, which stood at 33.9%
in 2014, suggests the possibility that this very different structure of private versus public
hospitals may have an effect on the ability to respond to COVID-19 4 . In Sweden, national
hospitals are the central entities. "With central management being the responsibility of thegovernment, if there is a municipality with no ICU vacancies, patients will be transported
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beyond the borders of the municipality. Because the status of use of beds in each hospitalchanges frequently, the government centrally manages the process and instructs the ambulance
which hospital to transport the patient to.” This has allowed for a smooth emergency response5.
On the other hand, in the United States, the ratio of private hospitals is high (75% for non-profit
and 15% for profit among the private sector), but the number of ICU beds is also high6.
Furthermore, as a third reason for pressure on the system, according to an OECD
analysis that assigned scores, the adoption of IT in medical care is overwhelmingly high in
Denmark, South Korea, Sweden, etc., while Japan, together with Germany and the UnitedStates, is one of the advanced nations that is lagging behind in this area from an international
perspective. This delay in the introduction of IT may also be considered to have an effect on thetreatment of COVID-19 (Figure 12).
Figure 12 Status of IT use in medicine(Note) Scores applied based on consideration of eight items such as availability and immediacy of medical
data using 10 medical data sets (including inpatients and emergency medical care) and patient surveys.
The maximum value is 8.
(Source) Formulated by NIRA from Oderkirk, J. (2021), "Survey results: National health data infrastructure andgovernance".

Regarding the outlook for the future, Japan’s vaccination status is overwhelmingly
lagging behind other developed countries, which may affect future economic recovery (Figure13). In particular, the recent control of the transmission of the virus in the United Kingdom andthe United States is largely due to the rapid spread of vaccines. In the United Kingdom, theCopyright Ⓒ 2021 by Nippon Institute for Research Advancement
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formulation of an action plan for the development and securing of vaccines commenced from anearly stage in 2020, a speedy approval system has been established, regulations were relaxed in
October 2020, and it was decided to flexibly expand the provision of vaccines to individuals otherthan doctors following education and training. It is significant that many volunteers for thegiving of vaccine injections were trained as a result. In addition, people with underlying illnesses
were identified from medical record data and urged to be vaccinated, with all vaccination
reservations being made electronically.
Figure 13 Status of vaccinations
IsraelNumber of complete vaccinations per 100 people

United Kingdom

United States

Spain Germany
France
Italy
SwedenJapan2021/12021/32021/22021/42021/5(Note) Percentage of people who have been vaccinated at least once.
(Source) Formulated by NIRA based on Our World in Data, “Share of people who received at least one doseof COVID-19 vaccine”, which summarizes the published data of the Ministry of Health of each nation,
among other sources.

2. Effectiveness of Fiscal Policy(1) A High Proportion of Policy Lending in Japan’s Fiscal Policy
Throughout the world, nations have been forced to expend significant amounts of funds
in order to support medical care and their economies (Figure 14). Looking at figures up to March
2021, it is obvious, despite the low mortality rate of COVID-19 in Japan, that the nation’s
COVID-19-related fiscal spending as a percentage of GDP is extremely high internationally. If
we look at the breakdown of Japan’s fiscal expenditure, we see that the weight of policy-based
lending such as loans for small and medium-sized enterprises, which are in the category of

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"quasi-fiscal activity", is outstandingly high against other nations, while fiscal expenditure that
directly targets economic growth is not as high.
On the other hand, it is possible that Japan's future recovery may be as slow as Europe’s.
The IMF outlook for April 2021 is also concerning because it suggests that economic recovery
may be significantly delayed not only in China but also the United States, which is expected to
expend an enormous amount of funds (Figure 15).
Figure 14 Fiscal expenditure in each nation considered(Note) Fiscal measures in response to COVID-19 planned after January 2020 and announced by March 17,2021. Includes the implementation schedule for 2021. Ratio to GDP (based on World Economic Outlook
database: April 2021). Arranged from the left in descending order of number of policies that directly
target the economy against GDP.
(Source) Formulated by NIRA based on IMF “Database of fiscal policy responses to Covid-19”.

Figure 15 GDP level recovery scenarios (against the previous year) for the US, the UK,
Germany, China and Japan (IMF April 2021 outlook)Japan

Germany

United Kingdom

United States

China(Note) Formulated by NIRA based on IMF “World Economic Outlook database: April 2021”.

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(2) What is Effective Fiscal Expenditure?
Although Japan's fiscal expenditure in response to COVID-19 has been quantitatively
high by international standards, there may be qualitative issues. The weighting of financing
and the provision of guarantees is high in Japan’s fiscal expenditure. Clearly, these measures
play a significant role in aiding companies in trouble. However, it will be necessary to verify
whether they can effectively support the economy and provide support for the “new normal”
during COVID-19 and after COVID-19.
1) Policies to Support Consumption
Japan's financial expenditures is large-scale, and as mentioned above, the weighting of
Fiscal Investment and Loan Program (FILP)- related initiatives is high, such as the provisionof financial support by public financial institutions for small and medium-sized enterprises
whose management is deteriorating and guarantees of loans from private financial institutions(Figure 14). The greater component of expenditure can be seen to support companies andindirectly support employment. In the component that directly targets economic growth, there
has been a high level of support for household and business finances, for example in the form ofbenefits, and this can be said to have been effective in holding down the unemployment rate andallowing companies to survive. The largest expenditure item in the general account in fiscal
2020 is approximately 13 trillion yen, to fund a “Special Fixed Benefit Payment” of 100,000 yen.
Comparing the rate of decrease in personal consumption in 2Q-4Q 2020 / 4Q 2019 byitem with Germany, Sweden, the United Kingdom, and the United States, we see that the
decline in service consumption explains almost the entirety of the decline in consumption ineach nation (Figure 16). In the United Kingdom in particular, service consumption fell sharply,
but the proportion of face-to-face services such as dining, tourism, and transportation was high7.
In Japan, consumption of durable consumer goods has shown a slight dip, but consumption ofdurable goods is either positive or displaying no net change in most of the countries surveyed.
Looking at each quarter, consumption of durable goods has picked up from around thethird quarter in Germany and the United States. In the case of Germany, it is considered thatsubsidy policies for eco-friendly vehicles and temporary consumption tax cuts have beensuccessful in increasing consumption. On the other hand, looking at Japanese households, we
can confirm that consumption propensity in 2020 was significantly lower than in the previous
year, and that the Special Fixed Benefit Payments did not necessarily encourage consumption8.
Looking at current household deposit balances, there was an increase of 27 trillion yen from1007 trillion yen to 1032 trillion yen from December 2019 to September 2020, and it isconjectured that many benefit payments went into savings.

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Figure 16 International comparison of consumption expenditure by item(① Rate of increase / decrease in 2020 2Q-4Q compared to 2019 4Q)(② Trends in quarterly consumption of durable goods)(Note) Calculated assuming 4Q 2019 as 100.
(Source) Formulated by NIRA based on OECD data.

2) Public Investment Towards the Future
Looking at fixed asset formation (Figure 17), major nations are generally sluggish, andJapan’s public-sector figures are almost flat. By contrast, we can see that Germany displays asignificant degree of public-sector fixed asset formation in 2Q, which was a difficult period due
to COVID-19. Looking at Germany's budget, as of June the nation decided to focus spending on
green-related investment and R&D of AI, quantum computers, 5G, 6G, etc. This type of public
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capital formation will support GDP in this difficult quarter, contributing 1.42 percentage points.
Figure 17 International comparison of fixed asset formation(quarterly basis from 4Q 2019)(1) Private sector(2) Public sector
120

110
100
90
80
70
4Q 2019

1Q 2020

2Q 2020

3Q 2020

Japan

Germany

United Kindgom

United States

4Q 2020(Note) Calculated assuming 4Q 2019 as 100.
(Source) Formulated by NIRA based on OECD data.

3) Corporate Metabolism
In the United States, the price of IT-related stocks (GAFA, etc.), for example ecommerce-related and remote work-related stocks, and additionally stocks in companies such
as Tesla, is increasing, and even amid the COVID-19 crisis, start-up companies focusing inparticular on DX and similar strategies have entered the market one after another from the
middle of 2020. Despite COVID-19, Singapore also had a large number of new business openings
in 2020, allowing us to point to the functioning of economic dynamism. Comparing the numberof new business openings internationally, Japan is not displaying a large number, with a
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level approximately the same as that of Germany (Figure 18). At the same time, the excess debt
of Japanese private-sector companies has ballooned to almost four times the nation’s GDP; inthe case of the UK, the figure is slightly less than three times (the next highest among developed
nations), indicating that a lack of corporate metabolism is an issue.
Figure 18 Status of new business openings in each nation considered

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(Source) Formulated by NIRA based on Ministry of Justice, “The Statistics on Registration”, German
Federal Statistical Office, “Statistics of Business Notifications,” Singapore Department of Statistics,“Formation and Cessation of Business Entities”, and U.S. Census Bureau, “Business Formation Statistics”.

(Source) Formulated by NIRA based on Ministry of Justice, “The Statistics on Registration”, German Federal
Statistical Office, “Statistics of Business Notifications,” Singapore Department of Statistics, “Formation
and Cessation of Business Entities”, and U.S. Census Bureau, “Business Formation Statistics”.

3. Merits and Demerits of Monetary Easing
The governments of each nation considered are increasing bond issuance, and theircentral banks are purchasing these bonds and maintaining low interest rates. Due in part tothis monetary easing, stock prices have remained high, which supports the economy (Figure 19).
At the same time, the ratio of outstanding public debt is also increasing in each nation, but
Japan’s is the highest, and the structural problems that existed prior to the COVID-19 crisis
have worsened. In addition to the challenge of securing financial resources in the future, theexpansion of outstanding debt also increases the potential risk to the financial system of “macrofinancial imbalance” (Figure 20).
Furthermore, it should be noted with regard to the increase in stock prices, that therate of return on capital continues to exceed the growth rate, and the disparity between thehigh-income stratum, who will enjoy the benefits of this, and the poor may be widening
worldwide. In particular, it can be seen that in the United States, stock prices such as prices for
GAFA stock have risen due to the progress of digitalization, making it possible that the incomeof the wealthy classes will continue to increase. Globally, disparities are widening depending onwhether or not it is possible to digitalize. There are, in particular, many children in developing
countries who cannot receive online education, and this is becoming a serious problem.

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Figure 19 Transition in stock prices(Note) Calculated with the end of December 2019 as 100.
(Source) Formulated by NIRA using data based on Thomson Reuters Datastream.

Figure 20 Trends in the ratio of outstanding national debt to GDP in the US, the UK,
Germany, and Japan(Source) Formulated by NIRA based on IMF “World Economic Outlook Database: April 2021”

Conclusion: Summary of Results of Study and Comments on Certain Policy
Challenges(1) Improvement of Medical Care System, Rapid Response to Vaccination, and Effective
Fiscal Expenditure Are Issues
Overall, COVID-19 has had a major impact on all developed nations, but among thesenations, in 2020 Japan displayed a low mortality rate and little economic damage, representing
a comparatively effective response. However, looking at each, we see that some nations are being
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flexible in devising responses within their medical care systems, and there are also nations that,given the fact that the economic damage from COVID-19 is concentrated in the area of service
consumption, are implementing effective economic measures on this basis.
From an international perspective, it seems that we will gradually see a difference
between nations that have effectively invested in the future by means of economic measures,and those that have not. In the case of Japan, it will be essential to fundamentally resolve theissues in the nation’s medical system that are becoming increasingly apparent in 2021. In
particular, in order to achieve recovery of the nation’s economy and society and assure economic
security , it will be necessary to drastically reform the medical care system (hospital beds,
hospitals, etc.), ensure the ability to maneuver in emergencies, provide support for vaccine
development and create a system for rapid vaccination. The following two points are theimmediate issues that should be discussed.
・Drastic reform of medical care system and fundamental enhancement of speed of vaccination:
While the medical care system must unavoidably be reviewed during normal times, in response
to a crisis, it is essential to establish systems that enable stronger inter-hospital and interregional cooperation resembling Sweden’s. In addition, it will be essential to accelerate thedigitalization and online access of medical care. From the perspective of economic security, it
will be extremely important to be able to flexibly ease regulations, for example to provide
support for research and development of domestically-produced vaccines, shorten the process
required until approval, and increase the number of people able to conduct vaccinations.
・Greater ingenuity in fiscal expenditure (wise spending): Although policy modes focusing on
employment maintenance and support for leave from work are also necessary, it would bedesirable to realize dynamism that promotes reforms looking towards post-COVID businessmodels, such as the provision of support for start-up companies and for DX and greening, as inGermany, and for fiscal expenditure to be balanced with economic revitalization. It will also benecessary to consider effective measures to support consumption rather than simply providing
uniform benefits.
(2) What is Important as a Long-term Issue Is to Respond to Increasing Public Debt and

Widening Disparities
With regard to response to the expansion of Japan’s public debt, current fiscal
expenditure is necessarily extremely high, and the consequent expansion of public debt intandem with corporate debt will increase macro-financial imbalance, resulting in greater
potential risk to the financial system. In addition, interest payments may become a heavy
burden in the process of normalizing interest rates. The following two points can be indicated as
long-term issues to be discussed.

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・ Responding to the expansion of public debt: As disparities widen post-COVID, it will benecessary to examine how to redesign the tax system and to consider long-term fiscal
normalization. In the UK, there is a move to raise the corporate tax rate after 2023, when theeconomy is expected to recover. In the United States, under President Biden, plans to increase
corporate tax and taxes on the wealthy are scheduled to be discussed, and the G7 is also moving
to discuss the minimum level for corporate tax. It will be necessary for Japan to consider a newtax system for the “new normal” post-COVID.
・Responding to disparities: Looking at the world as a whole, there are concerns about the
expansion of debt, the blurring of the boundary between public funds realized through continued
monetary easing and financing, and widening disparities (acceleration of the collapse of the
middle-class). In the future, it will be necessary for the world as a whole to revive economies by
securing financial resources while correcting the widening disparities that have resulted fromthe COVID-19 crisis. As part of this, we can point to an urgent need to create inclusive safety
nets that enable smooth employment transition even if a company goes bankrupt, and torespond to the digital divide. In the area of corporate governance also, it will be necessary forshareholders to further encourage companies to respond to social issues. It should also be bornein mind that while long-term monetary easing has supported the economy by raising stock
prices, it has also widened disparities.

Note
1 Okina (2020a,b)2 It has been pointed out that in addition to a high ratio of face-to-face services, the decline in

consumption in the United Kingdom may have statistically inflated the decline in generalspending by the government (See References, ONS (UK))
3 See Ministry of Health, Labour and Welfare, Health Policy Bureau (2020), “International

Comparison of Beds in ICUs, etc.” (In Japanese)(https://www.mhlw.go.jp/content/000664798.pdf)
4 See WHO “Private inpatient hospital beds as % of all beds”(https://gateway.euro.who.int/en/indicators/hfa_492-5150-private-inpatient-hospital-beds-as-ofall-beds/)
5 "At least avoiding hospital beds being overwhelmed… What is the current situation in Sweden?

We ask Dr. Ayako Miyagawa of Karolinska Institute" (In Japanese), The Nikkei (Nihon Keizai
Shimbun), December 27, 2020

6 See Ministry of Health, Labor and Welfare (2016), "Primary Sources Edition: Overseas Medical

Care Systems" ("Survey and Research on the Actual Status of Medical Corporations Overseas":
Report) (In Japanese)
7 See ONS (2020)
8 See Ogata (2021)

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References
Hale, Thomas & Angrist, Noam & Goldszmidt, Rafael & Kira, Beatriz & Petherick, Anna
Phillips, Toby & Webster, Samuel & Cameron-Blake, Emily & Hallas, Laura & Majumdar,
Saptarshi & Tatlow, Helen. (2021). A global panel database of pandemic policies (Oxford
COVID-19 Government Response Tracker). Nature Human Behaviour. 5. 10.1038/s41562-02101079-8.
IMF (2021a) “Fiscal Monitor Database of Country Fiscal Measures in Response to the COVID19 Pandemic” (https://www.imf.org/en/Topics/imf-and-covid19/Fiscal-Policies-Database-inResponse-to-COVID-19)―― (2021b) “World Economic Outlook, April 2021: Managing Divergent Recoveries”(https://www.imf.org/en/Publications/WEO/Issues/2021/03/23/world-economic-outlook-april2021)
OECD (2021) “Business Dynamism during the COVID-19 pandemic: Which Policies for an
Inclusive Recovery?” (http://www.oecd.org/coronavirus/policy-responses/business-dynamismduring-the-covid-19-pandemic-which-policies-for-an-inclusive-recovery-f08af011/)
Oderkirk, J. (2021), "Survey results: National health data infrastructure and governance",
OECD Health Working Papers, No. 127, OECD Publishing, Paris,
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Office for National Statistics UK (2021a) “International Comparisons of GDP during thecoronavirus (COVID-19) pandemic”(https://www.ons.gov.uk/economy/grossdomesticproductgdp/articles/internationalcomparisonso
fgdpduringthecoronaviruscovid19pandemic/2021-02-01)―― (2020b) “Coronavirus and the latest indicators for the UK economy and society: 11 March2021”(https://www.ons.gov.uk/peoplepopulationandcommunity/healthandsocialcare/conditionsanddis
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Okina, Y.（2020a）“Why did Sweden choose not to Lock Down ?,” NIRA Opinion Paper No.52――（2020b） “What can we learn from Germany’s Response to COVID-19 ?,” NIRA Opinion
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Tajika, E. (2020), "How did the Japanese Government confront COVID-19 ?," The Tokyo
Foundation for Policy Research (https://www.tkfd.or.jp/research/detail.php?id=3658)
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Piketty, T. (2014), Capital in the 21st Century, Belknap Press

Yuri Okina
Dr. Okina is an Executive Vice President of the Nippon Institute for Research
Advancement (NIRA), and the Chairperson of the Japan Research Institute(JRI). She graduated from Kyoto University with a Doctorate in Economics.
Her publications include Financial Crisis and Prudent Policy, Nihon Keizai
Shimbun Shuppansha, (2010). She is a member of the Financial System
Council and the Industrial Structure Council.

Copyright Ⓒ 2021 by Nippon Institute for Research Advancement
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presented here.

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