In focus

Japan’s cautious approach leaves it behind in the vaccine race


With only 1.3% of the population having had the jab, Japan’s vaccine roll-out has been disappointingly slow.

The share of the population vaccinated in other developed market countries such as the UK (48%), the US (38%) and the EU (18%) now dwarfs Japan.

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Japan’s daily vaccine rate is too low

Reliant on importing vaccines, Japan has enough vaccines on order to cover its population, with supplies coming from various distributors including AstraZeneca (120 million), Moderna (50 million) and Pfizer (144 million).

However, Japanese authorities have taken a cautious approach to the approval process, with additional safety trials being carried out for each supplier.

As a result, the Pfizer vaccine is the only one to have been approved for domestic use so far and supply is still on its way. Japan currently has around 11 million doses of the vaccine from Pfizer, with just under 100 million expected to arrive by June.

With question marks over the approval of the AstraZeneca vaccine, Japan has in recent days secured another 50 million of the Pfizer vaccine.

This leaves Japan with enough vaccines, conditional on approving the Moderna jab. But any delay in the arrival of the Pfizer doses could provide a supply constraint, particularly if the AstraZeneca vaccine is not approved.

But even now, only 0.05% of the population is being vaccinated per day. At this rate only 13% of the population will be vaccinated by the end of the year. This rate is too low and would need to be raised to 0.4% per day for Japan to have a chance of reaching herd immunity by the end of the year.

Paradoxically, Japan’s relative success in handling the pandemic means that herd immunity is likely relatively low.

The good news is that Japan is now moving from vaccinating its healthcare workers to a broader group of people aged over 65, so the daily vaccination rate is likely to pick up somewhat.

What does this mean for the economic and political outlook?

There are two main implications to Japan’s slow vaccine roll-out. The first is, at current rates, Japan is struggling to contain the virus without restrictions. Some parts of the country are still in a quasi-state of emergency, including Tokyo and Osaka.

This is tricky when Japan is set to host the Summer Olympic Games in only a few months. Rising coronavirus cases have of course been met with fresh calls for the Games to be cancelled. This is more important from a political or public relations point of view rather than an economic one, given any boost would have likely have been relatively small and temporary.

Looking further out, unless daily vaccination rates rise quickly, Japan is unlikely to reach herd immunity by the winter. This risks further waves of Covid and would delay the recovery in services, including hospitality and travel, to next year.

Secondly, this could have political ramifications for Prime Minister Suga. Suga’s approval rating has fallen markedly since he took over as prime minister in September last year. A recent poll from Kyodo News suggests that 60% of Japanese people are dissatisfied with Japan’s vaccine roll-out. If the vaccine rate does not improve this will likely worsen and weigh on Suga’s popularity.

An election must be held before October and with little opposition to the current ruling Liberal Democratic Party (LDP), this is unlikely to damage the party itself too much. Instead, the risk is that Suga loses the support of the party, paving the way for a new leader and, in turn, new prime minister.

Where does this leave investors?

A potential delay to the recovery in services does not materially change the economic outlook but the driver of the recovery will rely even more on exports of manufactured goods. While semiconductor shortages highlight some near term risks, the latest export data suggests the wider global recovery story is still intact.

For equity investors this is important, given over 40% of Japanese companies’ total revenue is international rather than domestic. However, this is not to say the domestic picture is unimportant and for now, lack of progress on the vaccine will likely weigh on the outlook for domestically generated earnings.

The context is one where, looking across markets, the US is making swift progress on its vaccinations and, bolstered by fiscal stimulus, the economic recovery is gaining momentum. As Europe and Japan lag behind, the theme of US exceptionalism in financial markets remains difficult to challenge.