Japan Set for Biggest-Ever Stimulus to Battle Virus, Abe Says
The financial effect of the virus has been devastating, with the economy heading for its weakest period since the financial crisis
(Bloomberg) --
Japanese Prime Minister Shinzo Abe said he plans to submit an extra budget in about 10 days to help fund an unprecedented economic stimulus package, while warning residents to prepare for a long battle against the coronavirus pandemic.
Speaking at a press conference in Tokyo, Abe said there was no need to declare an emergency now, but urged the public to remain on guard amid the risk of a sudden, broad spread of the infection.
“I want to take actions that will provide a concentrated, short-term boost in demand,” he said, adding that fiscal, monetary and tax policy would be deployed in unison. Interest-free loans will be made available, including to private-sector financial institutions, he said.
Japan reported more than 100 new cases on Friday, the largest one-day increase since January, according to the health ministry, although overall confirmed cases, at around 1,500, remained far below figures seen in many other countries.
That said, the financial effect of the virus outbreak has already been devastating, with the economy heading for its weakest period since the financial crisis, according to the latest projections from economists. Goldman Sachs Group Inc. on Wednesday cut its 2020 expectations for gross domestic product to a 3.1% contraction from a 2.1% drop.
Cash Handouts
The government would provide cash handouts for citizens and act to protect regional employment, Abe said. The actions will be on a larger scale than during the financial crisis more than a decade ago, he added.
Asked about the possibility of cutting the sales tax, which was raised to 10% in October, he said he wanted to emphasize measures with a more immediate effect.
Abe’s comments came a day after parliament passed a regular annual budget of 102.7 trillion yen ($950 billion) for the year starting April 1, put together before the virus started spreading across the world.
The government is seeking to counter a sharp deterioration in the economy, as the virus halts factory assembly lines, empties hotels and restaurants, and keeps shoppers and tourists at home.
Economic Pain
The postponement of the Olympics also removes a potential boost to the economy. Abe on Friday told reporters that he will conduct policies to bring the economy back into a v-shaped recovery.
Whatever measures he takes, a sharp widening of the budget deficit seems inevitable.
Finance Minister Taro Aso hinted Friday 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 annualized 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.
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