Japan’s economy, the world’s third largest, shrank by a record 7.8% in the second quarter of 2020 – equivalent to an annualised rate of 27.8%. Japan began recording comparable gross domestic product (GDP) figures in 1980, and its previous worst decline on record came during the global financial crisis, with a drop of 17.8% in 2009.
Like other countries across the globe, Japan has been hit by the disruption caused by coronavirus lockdown measures implemented during the second quarter of 2020. However, it avoided imposing the severe measures seen elsewhere, such as in western Europe. It is perhaps for this reason that its economic hit was less than the 10.1% drop in GDP seen in Germany, the 9.5% decline in the US, or the UK’s drop of more than 20%, over the same period.
However, Japan has fared worse than neighbouring South Korea, where economic output fell by just 3.3%, or Taiwan, where GDP was down just 0.7%, during the second quarter.
Japan’s banks, like others across the world, have had to set aside significant provisions in anticipation of souring loans. The big three banks, Mizuho, MUFG and Sumitomo Mitsui, have collectively set aside the equivalent of $2.2bn.
There remains considerable uncertainty about how badly banks will be hit by the economic turbulence, and the country’s banks entered this period in varying positions. Mizuho, the country’s third largest bank, reported a considerable increase in pre-tax profits in 2020 compared with the previous year, along with smaller bank Nomura, whereas MUFG and Sumitomo Mitsui saw substantive declines.
