Business / Economy

In Japan's record stimulus, which cleared the Diet, what will be on offer?

by Kazuaki Nagata

STAFF WRITER

With the novel coronavirus pandemic crippling companies, threatening jobs and denting consumption, the government is trying to shield its economy with a gargantuan stimulus package financed by a supplementary budget bill that cleared the Diet on Thursday.

Although the enactment of the budget bill was delayed due to political wrangling over a cash handout program for households, the ¥117 trillion size of the economic measures has already been determined.

What are the focuses of the package and how big is this stimulus compared to those drafted in the past? How much will the government spend?

Here are some questions and answers about Japan’s relief package to counter COVID-19:

How will the stimulus protect the Japanese economy?

One of the top priorities is to stave off the virus spread. The relief package allocates ¥1.8 trillion for this purpose, to supply more necessary items such as face masks and ventilators to medical workers, bolster PCR testing capability and accelerate the development of vaccines and medicine.

Helping the cash management of companies, as well as safeguarding jobs and people’s lives, are also immediate objectives.

The government will spend ¥12.8 trillion to fund a controversial ¥100,000 cash handout program for all individuals, including foreign nationals registered as residents. The Cabinet had initially set a ¥300,000 cash distribution policy for households struggling with income losses, but it reorganized the bill after Komeito, the junior partner of the ruling Liberal Democratic Party led by Prime Minister Shinzo Abe, strongly urged Abe to do so. It is extremely rare for the Cabinet to reverse a policy already approved.

It will finance ¥3.8 trillion for small and medium enterprises to secure cash to stay afloat. Also, ¥2.3 trillion is set aside for those companies and solo proprietors experiencing severe financial losses. The firms can receive up to ¥2 million each and self-employed individuals ¥1 million if their revenues have halved due to the impact of the virus.

The money for these measures for households and companies totals ¥19.4 trillion, which accounts for around 76 percent of the whole supplementary budget.

Dubbed the “V-Shaped Recovery Phase,” the stimulus package includes measures to be launched once the virus is contained. Japan is aiming to stimulate consumption with its ¥1.6 trillion “Go To” campaign, which will subsidize people’s travel expenses and tickets for entertainment events.

But some economists and lawmakers have questioned whether it’s necessary to prepare such measures now, while the outlook for containing the virus remains uncertain.

Will the Japanese government, which has snowballing debts, actually spend ¥117 trillion on the stimulus?

No, the government usually uses a total scale figure that combines spending by the central government, local governments and municipalities, the private sector and loans offered by financial institutions.

A large portion of the ¥117 trillion figure is, in fact, the loan programs. Around ¥26 trillion in moratoriums on tax payments for affected companies are included as well.

In Japan, politicians and economic experts often use the term “fresh water (mamizu)” to describe actual government spending or money expected to directly push GDP, to differentiate it from the “total size (jigyōkibo),” a measure some criticize as an inflated number.

The Cabinet Office says the amount of central government spending — the fresh water — is ¥33.9 trillion. Of that, ¥25 trillion is backed by the supplementary budget, which will be funded by issuing more bonds and will add a greater financial burden on a country whose debts have exceeded 200 percent of its GDP.

This means that although Abe has touted the total size as nearly 20 percent of Japan's GDP, actual government spending will be about 6 percent.

In that sense, the ratio is close to the U.S. $2.3 trillion (¥245 trillion) package signed by President Donald Trump in late March.

According to the Committee for a Responsible Budget, about $875 billion is estimated for loans. The rest — about $1.4 trillion, which is about 6.6 percent of the U.S. GDP — is close to the notion of fresh water, said Hajime Inoue, a researcher watching the U.S. economy at the Japan Research Institute.

How does this stimulus compare to the past record-setting package?

The previous record relief measures were compiled in 2009 when the international community was suffering amid the global financial crisis, triggered by the collapse of the U.S. subprime mortgage market in 2007.

At that time, their total value was ¥56.8 trillion, with actual government spending of ¥15.4 trillion, so the COVID-19 package is far bigger.

As for the economic impact, the Cabinet Office expects that the ¥117 trillion stimulus will push Japan’s real GDP up by 4.4 percent. Its estimation for the 2009 package was 2 percent.

The scale of the economic measures this time may indeed be larger, but the government will likely have to take additional steps — given that it reportedly plans to extend the state of emergency for a month, which will result in more damage to the economy.

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