Japan’s parliament passed a regular annual budget yesterday that clears the way for Prime Minister Shinzo Abe to come up with new stimulus measures to help an economy reeling under the impact of the coronavirus pandemic.
Even though a portion of the ¥102.7tn ($950bn) budget will fund parts of a stimulus package announced in December, it already looks outdated because it was put together before the virus started spreading across the world.
Now with the budget for the year starting April 1 out of the way, the government looks set to put together more spending measures to counter the sharp deterioration in the economy as the virus halts factory assembly lines, empties hotels and restaurants, and keeps shoppers and tourists at home.
Abe yesterday wrapped up a series of hearings with experts and business representatives looking at the impact and what can be done to ease the pain for businesses and households.
Following his final session in the evening with economists and experts dealing directly with Japanese consumers, Abe told reporters that he will conduct policies to bring the economy back into a v-shaped recovery. “While thoroughly stopping the virus spreading further, we’ll make it a priority to protect jobs and businesses,” he said.
The postponement of the Olympics also removes a potential boost to the economy. Whatever measures Abe takes, a sharp widening of the budget deficit seems inevitable. Finance Minister Taro Aso hinted earlier in the day that the government’s strategy would be to first help keep companies running and workers employed before a second round of stimulus.
“We need a two-stage response to the coronavirus outbreak,” Aso said following the passage of the fiscal 2020 budget.
Analysts believe the economy is already in a recession this quarter after contracting an annualised 7.1% in the previous quarter due to a sales tax hike, natural disasters and weak overseas demand. Japan Economy Minister Yasutoshi Nishimura said Thursday that an unprecedented economic response is needed to keep Japan from falling back into deflation, saying that the economy is likely to worsen from the fourth quarter. “We need a response that’s in line with that impact,” he said.
Among the ideas being floated are the boosting of loan programs and other assistance for companies, cash and coupon handouts for consumers and even a temporary reduction of the sales tax.
“We must think about who is going to be hardest hit,” said Atsushi Takeda, chief economist at Itochu Research Institute. “For now, it appears the service industry is going to get hit hard. That’s why the government must implement measures to shore up consumer spending.”
Takeda said that industry-targeted measures such as those supporting tourism would be effective, as would supporting households with children and lower incomes. Economist estimates for the scale of the package range from around the ¥26tn size of the December package to an eventual total that is double that. Whatever the headline figure probably less than half would amount to real fiscal measures.
Some lawmakers in Abe’s party have called for much larger amounts.
“I think if we passed the equivalent of two years’ budget in a year, that would put people’s minds at rest. So if the budget for a year is ¥100tn, we should
double it to ¥200tn,” said lower house lawmaker Yasuhide Nakayama.
Still, even if the package is similar in scale to the December spread of measures, together they would represent about 10% of GDP, said economist Mari Iwashita at Daiwa Securities.
Some economists say additional spending can only do so much. “Unless the spread of the virus itself is halted things won’t return to normal,” said Yasunari Ueno, chief market economist at Mizuho Securities Co. “The nature of the situation means that even with $2tn of spending it doesn’t mean we are all right.”
Shinzo Abe, Japan’s prime minister, delivers his policy speech during an extraordinary session at the lower house of parliament in Tokyo. Abe yesterday wrapped up a series of hearings with experts and business representatives looking at the impact of the coronavirus and what can be done to ease the pain for businesses and households.
