Japan boosts fiscal stimulus to $1.1-trillion as coronavirus fallout deepens

 Tokyo  — Japan boosted its new economic stimulus package on Monday to a record $1.1-trillion to expand cash payouts to its citizens, as the fallout from the coronavirus pandemic threatens to push the world's third-largest economy deeper into recession.

Prime Minister Shinzo Abe formally decided the new stimulus less than two weeks after his cabinet approved an earlier plan to spend ¥108.2-trillion ($1-trillion), which had detailed payouts of ¥300,000  to households with sharp drops in income.

Abe has caved in to pressure from within his own ruling coalition to boost the help with a payment of ¥100,000 for every citizen, instead of ¥300,000 for a limited number of households, analysts say, casting doubt about his leadership amid falling support. The new amount triples the cost from what the government had originally planned.

“I understand the ¥100,000 payout scheme was decided with the aim of encouraging every citizen to help with each other to overcome this crisis as one,” finance minister Taro Aso said.

“The finance ministry will do the utmost to have this enacted quickly so that the payouts and other support will be delivered to the people as early as possible.”

Expansion of the scheme may support private consumption that accounts for more than half of the economy, some analysts said, though many others believe most of the payouts would end up in savings rather than spending to shore up the economy.

“Recipients of the payouts include the rich and the people whose incomes are not suffering, so savings will also rise,” said Ryutaro Kono, chief economist at BNP Paribas Securities.

“Even considering more people will suffer economic pain this time than during the 2009 financial crisis, the proportion of the payouts that will be spent is estimated at about 40%. As such, it would push up GDP only by 0.3 percentage points.”

The increased package will total ¥117.1-trillion ($1.086-trillion), with fiscal measures making up less than half of it, the finance ministry said.

To help fund the stimulus spending, the government compiled a record supplementary budget worth ¥25.7-trillion for the fiscal year from April 1, to be funded entirely by additional bond issuance, the ministry said. It compared with an initial extra budget worth ¥16.8-trillion.

Policy mix

While the government boosts fiscal stimulus, the Bank of Japan (BOJ) has also joined other central banks to roll out stimulus to stave off the risk of a global recession.

The BOJ eased monetary policy last month by pledging to boost risky asset purchases and create a new loan scheme to pump more money into firms hit by slumping sales. The central bank will discuss further steps to ease corporate funding strains at April's rate review as the impact hits profits.

The government on the other hand will raise the market issuance of government bonds by ¥5.8-trillion yen to ¥152.8-trillion  in the fiscal year to March 2021.

The extra borrowing will add to the industrial world's heaviest public debt burden, which is more than twice the size of Japan's $5-trillion economy.

It is rare for the government to compile an extra budget at the start of a new fiscal year, and it is even rarer to revise a budget draft that has been approved by the cabinet after co-ordinating closely with the ruling coalition.

Last week, the prime minister, who has been criticised by some over his handling of the pandemic, apologised for confusion over a plan to start distributing coronavirus relief payments next month.

The government is expected to submit the extra budget to parliament early next week, with the aim of gaining approval by the “Golden Week” holidays early May.

More than 200 people have died from the virus in Japan, which has reported more than 11,000 infections, of which more than a quarter are in Tokyo.

Reuters