Japan Passes $298 Billion Second Extra Budget Amid Pandemic
Japan Passes $298 Billion Second Extra Budget Amid Pandemic
(Bloomberg) -- Japan’s parliament passed a record 31.9 trillion yen ($298 billion) extra budget Friday in an effort to shore up the economy amid the coronavirus pandemic.
The new spending provides financing help for struggling companies, payroll subsidies and aid to the medical system. The budget will help fund a 117 trillion yen stimulus package unveiled last month that doubles the scale of Japan’s virus response.
Japan’s second record extra budget since April is widely seen as needed amid the nation’s worst economic crisis in decades, but it also adds to a mountain of public debt. S&P Global Ratings cut its outlook on Japan’s sovereign bond rating this week, citing the setback to debt stabilization efforts.
A sharp slowing in the economic growth trend would be the most likely trigger for a downgrade of the sovereign ratings, S&P Global Ratings Senior Director Kim Eng Tan told Bloomberg News.
S&P Would Likely Downgrade Japan if Trend Growth Slows ‘Sharply’
To fund its additional general account spending this time, Japan will boost its debt issuance by 59.5 trillion yen, with some of the money used for government institution-led financing programs, according to the finance ministry.
About a third of the extra budget will go to financing help for struggling firms, with an emphasis on smaller businesses. Some 2 trillion yen will be used to subsidize rent payments for companies and several trillion yen will go to supporting the medical system.
Another 10 trillion yen will be set aside as a coronavirus reserve fund to be used to address needs such as a potential second wave of infections.
All told, Japan’s stimulus packages now total about 234 trillion yen, equal to more than 40% of gross domestic product.
Still, some economists say a third or even a fourth extra budget may be needed to help boost demand and plug a record hole between surging spending and sliding tax receipts.
Key Japanese cabinet members have defended the historic jump in spending, saying the priority now is to keep companies and households afloat and restoring fiscal health is impossible without a sound economy.
The spending also comes amid assurance from the Bank of Japan that it won’t allow bond yields to rise.
Although the recession likely passed its weakest point following last month’s lifting of Japan’s state of emergency, the economy is forecast to shrink 22% this quarter, the most in records going back to 1955. Recovery could be slow if export markets struggle to reopen more fully and consumer spending stays subdued.
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