(Bloomberg) -- Prime Minister Shinzo Abe doubled Japan’s stimulus measures as he looked to deliver on his bold promise to keep businesses and households afloat with the world’s biggest virus-response package.
His cabinet approved Wednesday a 117 trillion yen ($1.1 trillion) set of measures that includes financing help for struggling companies, subsidies to help firms pay rent and several trillion yen for health care assistance and support for local economies. The spending will be funded by a second supplementary budget that breaks a record for an extra budget set only last month.
The latest aid was finalized after data last week confirmed Japan has sunk into a deep recession and polls showed support for Prime Minister Abe’s cabinet dropping to a fresh low over its handling of the outbreak. Apparently sensing the need to do more, Abe vowed on Monday to bring the tally of measures to around 40% of gross domestic product.
“We are determined to protect the Japanese economy,” said Abe’s deputy, Taro Aso, after the cabinet approved the latest extra budget. “We are facing a crisis that goes beyond the scale of the Lehman shock.”
The ramped-up support went well beyond what was expected just a week ago giving a stronger impression that the administration was pulling out all the stops to save jobs and businesses despite the spotty disbursement of earlier measures such as cash handouts and subsidies.
“When popularity goes down, politicians tend to want to do something big,” said economist Hiroshi Shiraishi at BNP Paribas SA. “These measures are designed to stop or alleviate the damage done by the pandemic on companies and individuals, not to boost growth. So even with this package, Japan’s pickup will be very gradual.”
While the government ended its nationwide state of emergency this week and new virus cases have tailed off, the economic outlook is still grim. Analysts see GDP shrinking by more than 20% this quarter and say the recovery could be slow as exports, tourism and business investment struggle to rebound.
The new measures match the overall size of April’s 117 trillion package, bringing the total of the two packages to just under 234 trillion yen. The record second extra budget of 31.9 trillion yen to help fund the measures comes less than a month after the passage of the first.
The economic package also boosts loans and investment via government-backed lenders by 39 trillion yen to a record 62.8 trillion yen in the current fiscal year, measures that don’t show up in the extra budget figures.
The government’s extra spending comes amid reassurances from the Bank of Japan that it won’t allow bond yields to rise.
In a rare joint statement last week, the government and the central bank pledged tight cooperation to get funds to struggling businesses and shield the economy from the virus’s fallout. Governor Haruhiko Kuroda told parliament Tuesday that the BOJ would buy more government debt if the yield curve needed to be lowered.
Japan will boost its debt issuance by 59.5 trillion yen to fund the second extra budget and the other loans and investment in the new stimulus package, the finance ministry said. That will bring the total bond issuance this fiscal year to about 212 trillion yen, another bump from the 128.8 trillion yen planned in December.
The new spending will push Japan’s debt dependency ratio up to a record 56.3%, the finance ministry said. Japan already has the developed world’s biggest public debt load at more than twice the size of the economy.
Still, finance chief Aso said now was clearly not the time to be fretting about fiscal reform. A growing economy is needed first, he said.
What Bloomberg’s Economist Says
“Japan is preparing another monster fiscal stimulus package. The cost will be a mind-spinning surge in the debt-to-GDP ratio this year. The benefits, though, should be worth it. The much-needed support for hard-hit companies should reduce the chances of more lasting damage (a surge in bankruptcies and unemployment) that would impede a recovery once the pandemic abates.”
--Yuki Masujima, economist
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