Tokyo: Japan unveiled a record 108.2 trillion yen ($992 billion) stimulus package to shield the economy from the coronavirus’ widening as Prime Minister Shinzo Abe declared a state of emergency.
The package’s size, with a headline figure equivalent to 20% of the nation’s annual economic output, highlights the magnitude of the damage that policy makers are bracing for. Japan’s economy faces its biggest crisis since the end of the second World War, Abe told reporters Tuesday.
Abe earlier declared a state of emergency for Tokyo, Osaka and five other prefectures, empowering local authorities to urge people to stay at home in major cities that generate about half of Japan’s economic output.
Japan is ramping up its response to the outbreak amid mounting calls for more aggressive measures to contain the deadly virus and its economic consequences. Infection numbers have jumped in recent days, growing to about 4,000 from less than 400 a month ago and sparking concern Japan is headed for a crisis like the ones roiling the U.S. and parts of Europe.
Some analysts see the economy shrinking nearly 20% this quarter with export markets paralyzed, the summer Olympics postponed and the country’s major cities now facing the prospect of extended stay-at-home directives. For now, the government doesn’t have the luxury of worrying about adding to the developed world’s biggest public debt load.
Finance Minister Taro Aso told reporters Tuesday that the supporting the economy now takes priority over the government’s fiscal health.
Japan’s Recession Fears Deepen With Half of Economy in Emergency
Like past stimulus packages in Japan, this one’s spending punch will be much smaller than the headline figure suggests. Once contributions from private business and government loan programs are stripped out, actual fiscal spending totals 27 trillion yen, documents from the finance ministry showed Tuesday.
To fund the package Japan is compiling an extra budget of 16.8 trillion yen for this fiscal year, with 14.5 trillion yen to be raised from debt-covering bonds and 2.3 trillion yen from construction bonds.
Overall size is 108.2 trillion yen, including:
- Central and local government spending of around 27 trillion yen
- Government financing programs of 12.5 trillion yen
Extra budget total 16.8 trillion yen
- Funding comes from 14.5 trillion yen in debt-covering bonds and 2.3 trillion yen in construction bonds
- Spending items include 4 trillion in cash handouts for households and 2.3 trillion yen for small and medium-size companies
Much of the stimulus is aimed at stopping job and business losses. The measures offer larger subsidies for firms that keep workers on the payroll. Companies hit by the virus will be able to defer income and regional tax payments for a year.
The plan also calls for 4 trillion yen in cash handouts to struggling households and another 2.3 trillion yen for small businesses. Abe said the money should be paid next month.
He also said that experts’ calculations show the virus’ spread will peak out in two weeks, as long as people reduce contact with each other by at least 70% or 80%. Essential public services will continue to operate as normal and business won’t be forced to close, but the key is for people to change their behavior, he said.
Once the virus is brought under a control, a second phase of stimulus will aim to support a quick recovery with steps to increase tourism and consumer spending, along with subsidies for regional economies, according to a draft of the plan.
What Bloomberg’s Economist Says
“Japan’s record 108 trillion yen fiscal stimulus package will only damp what is still likely to be a wrenching contraction due to the impact of the coronavirus. The state of emergency aimed at containing the outbreak could cost the economy about 5 trillion yen per month in lost output — about 0.9% of GDP.” –Yuki Masujima, economist -Bloomberg