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560821
Fri, 03/27/2020 - 09:47
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Japan gears up for FY 2020 extra budget as virus crisis deepens

TOKYO, March 27 Kyodo - Japanese policymakers will have no time to relax despite Friday's parliamentary approval of a state budget for the new fiscal year as they look to ways to shore up the economy in a world changed by the coronavirus. Heavily-indebted Japan will now go full throttle in drawing up a fresh economic package to aid people and businesses bearing the brunt of the global coronavirus outbreak. The crafting of an extra budget for fiscal 2020 to fund the envisioned stimulus is the next priority. With the world's advanced economies rushing to ramp up fiscal spending amid the coronavirus crisis, Japan's stimulus package is expected to be worth at least around 56 trillion yen ($510 billion) -- or roughly 10 percent of gross domestic product. It will likely include cash handouts to households that have suffered income drops and an expanded scheme to extend loans, including those without interest or collateral, to businesses hit by slumping revenues due to the viral outbreak, according to sources close to the matter. With Japan having long faced a dilemma between increasing spending and restoring its fiscal health, the worst among developed nations with debt twice the size of gross domestic product, there has been discussion about how best to support the economy. Some ruling and opposition party lawmakers suggested cutting the just-hiked consumption tax, but the government views this option as politically unrealistic. The focus then shifted to the scale of fiscal spending needed. Prime Minister Shinzo Abe has indicated that the new package could be equal to or larger than the stimulus implemented to deal with the 2008 global financial crisis, which was worth 56.8 trillion yen. "The prevailing mood is for increased spending, which is understandable in times like this," said Toru Suehiro, senior market economist at Mizuho Securities Co. "With tax revenue likely to fall in Japan, the issuance of deficit-covering bonds is almost certain." "What is interesting is that despite recent emergency steps taken by major central banks, financial markets are not satisfied and they are waiting for fiscal support," Suehiro added. The viral outbreak that began in China's Wuhan late last year has spread worldwide to become a pandemic, with the number of infections topping 500,000, according to Johns Hopkins University of the United States. With travel restricted and supply chains disrupted, fears of a global recession have gripped financial markets. Japan is already seen as on the brink of entering a recession in the January-March quarter, after seeing in the October-December period its economy shrink an annualized real 7.1 percent from the previous three months. In a monthly economic report, the Cabinet Office on Thursday dropped the word "recovering" for the first time in over six years and described the domestic economy as being in a "severe situation." The change could be used by the government to justify massive increased spending despite the need to maintain fiscal discipline, economists say. To better respond to a surge in infections in urban areas, the government launched a national headquarters on Thursday that will enable Abe to declare a state of emergency should it become necessary. Takuya Hoshino, an economist at the Dai-ichi Life Research Institute, said supporting struggling businesses and keeping jobs are more urgent than stimulating consumption with no apparent end in sight to the viral outbreak. "In terms of support for consumers, handing out cash to encourage people to spend may not be effective because the bulk of them could be saved. Rather, rewarding people with points or through other means of spending would be better," Hoshino said. In the aftermath of the 2008 global financial crisis, Japan handed out 12,000 yen per person in 2009. The compilation of an extra budget to fund what could be the largest economic package under Abe, who returned to power in 2012, comes shortly after the International Olympics Committee decided to postpone the Tokyo Olympics and Paralympics this summer for about one year. Compiling a supplementary budget in Japan to boost spending is a routine response to absorb economic shocks from natural disasters and other events -- most recently the consumption tax hike from 8 percent to 10 percent in October, which has taken a heavy toll on personal spending. Japan's parliament passed a record 102.66 trillion yen budget for fiscal 2020 on Friday, with about a third of the total, or 35.86 trillion yen, allocated for social security spending given the country has a rapidly aging population. The sum includes 5.31 trillion yen in defense spending and 1.78 trillion yen for steps to support the economy hit by the consumption tax increase. The fiscal 2020 budget also has a 500 billion yen reserve fund for use in emergency situations. Japan tapped reserve funds in the current business year through next Tuesday to pay for its first coronavirus package, announced in mid-February and worth 15.3 billion yen, and a second one earlier in March that included 430 billion yen in spending. Some economists point to the risk of a prolonged pandemic hurting the economy longer than initially thought. The export-reliant Japanese economy is vulnerable if business activity stalls in countries such as the United States and China, its major trading partners. "Drawing up a bigger package than the post-Lehman size should not be the goal in itself," Suehiro said, referring to the 2008 crisis triggered by the collapse of U.S. investment bank Lehman Brothers Holdings Inc. "It's important to break the pessimistic mood now but we still lack actual economic data to see how much fiscal spending will be needed," he added. ==Kyodo

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