Abe unveils massive coronavirus stimulus equal to 20% of GDP

Tokyo

JAPANESE Prime Minister Shinzo Abe pledged on Monday to roll out an unprecedented economic stimulus package, equal to 20 per cent of economic output, as his government vowed to take "all steps" to battle deepening fallout from the coronavirus.

They also include plans to declare a state of emergency in seven prefectures including Tokyo and Osaka as the country braces for a surge in coronavirus infections.

The stimulus package, to be confirmed by the Cabinet on Tuesday, will total 108 trillion yen (S$1.42 trillion), far exceeding one compiled in the wake of the 2009 financial crisis totalling 56 trillion yen in size, with fiscal spending of 15 trillion yen.

"We decided to carry out an unprecedentedly massive scale of economic package worth 108 trillion yen, or 20 per cent of GDP, following the immense damage to the economy from the novel coronavirus," Mr Abe told reporters after a meeting with senior ruling party lawmakers.

The package features cash payouts worth more than 6 trillion yen to households and small and midsize firms, which are facing hardships, Mr Abe said, highlighting extensive damage from the virus, which has fuelled fears of a recession.

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To protect employment, the government would also establish arrangements through the package to allow small and midsize firms to borrow at zero interest from private financial institutions, Mr Abe said.

It would also give struggling companies a grace period for tax payment and social security fees totalling 26 trillion yen to help them continue business operations, he added.

Mr Abe stopped short of providing further details, but the amount may include earlier economic measures valued at 26 trillion yen, which were adopted at the end of last year to cope with risks from the Sino-US trade war.

Still, the package turned out far bigger than the amount anticipated by market players, giving a sense of security for people facing income declines and staying indoors, some analysts say.

"There may be a limited impact on stimulating consumption given many people are refraining from going shopping," said Masaki Kuwahara, senior economist at Nomura Securities. "But it could prevent a second-round effect on aggravating the economy."

In a measure of how seriously the government views the situation, a draft document prepared by the government refers to the pandemic as the "biggest crisis" the global economy has faced since World War Two.

The document says the government and the Bank of Japan need to share a sense of crisis and closely cooperate with each other.

The package draft also aims to boost production of Fujifilm Holding Corp's Avigan anti-flu drug during this fiscal year so it can be used to treat two million people.

To fund the package, the government would issue deficit-covering bonds, adding further strain to the industrial world's heaviest public debt at more than twice the size of its US$5 trillion economy.

Sources told Reuters last week Japan would boost government bond issuance by 16 trillion yen to around 145 trillion yen to be sold in the market this fiscal year, which would mark the first rise in annual bond issuance in four years.

The emergency declaration, which Mr Abe announced is not a lockdown but enables local officials to take measures such as ordering the cancellation of events, restricting use of facilities such as schools and movie theatres and appropriating land or buildings for temporary medical facilities. It also enables local governments to take steps such as controlling prices of daily essentials, providing loans through government-related financial institutions and making compulsory purchases of food and medicines.

Besides Tokyo and Osaka, the emergency measures will cover Kanagawa, Saitama, Chiba, Hyogo and Fukuoka prefectures.

"We are not changing Japan's policy, but strengthening it and asking for full cooperation," Mr Abe told reporters at his official residence. "I want to make clear once again that even if an emergency is declared, we will not impose a lockdown as has been done overseas. It is the opinion of our experts that that isn't necessary."

The announcement comes after pressure from the public and the medical community. After last week saying the situation didn't yet call for such a move, Mr Abe changed course as cases in Tokyo surged over the weekend. There were about 4,000 reported cases as of Monday - a jump from less than 500 just a month ago.

Under a state of emergency, public transportation will continue to operate and supermarkets will remain open, Mr Abe said, emphasising that he wanted economic activity to continue as far as possible. Unlike countries like France - where residents can be fined for leaving their homes - there is no legal power to enforce limits on people's movements.

A state of emergency can stay in place for as long as two years and be extended by as much as one more year, under a law updated in March. The prime minister can make the call when the spread of the infection threatens serious damage to the lives and health of the people, as well as to the economy. REUTERS, BLOOMBERG