Japanese Economic Performance after the Pandemic: A Sectoral Analysis

The COVID-19 crisis battered the Japanese economy. The purpose of this paper is to investigate whether the pandemic has left scars. To this end, it employs out-of-sample forecasting models and detailed stock market data for 30 sectors and disaggregated current account data for the 3 years after the first case occurred. The findings indicate that stock prices in sectors such as tourism, education, and cosmetics remain far below forecasted values after three years. Office equipment and semiconductor stock prices initially fell more than predicted but have since recovered. Other sectors such as bicycle parts and home appliances gained at first but are now performing as expected. Sectors such as home delivery and electronic entertainment continue to outperform. The results also indicate that income flows from Japanese investments abroad are much larger than forecasted, keeping the Japanese current account in surplus even as imports of oil and commodities have created persistent trade deficits. Since the travails of hard-hit sectors such as tourism reflect their exposure to the COVID-19 pandemic rather than bad choices made by firms, policymakers should consider employing cost-effective ways to stimulate economic activity in these sectors.