Japan's Abe gears up for another big stimulus package

Tokyo

PRIME Minister Shinzo Abe is gearing up for his second big stimulus package in a matter of months as the novel coronavirus pushes Japan into what could be a deep and prolonged recession.

Mr Abe on Thursday opened a week-long series of evening hearings with business leaders and experts to try to come up with an economic rescue plan for the country. Cash handouts and a cut to the recently raised sales tax are among ideas reportedly being discussed.

"I want to implement bold economic measures to achieve a V-shaped recovery through various measures," Mr Abe said at the beginning of the first hearing. "To compile those measures, I want to directly hear from everyone about what kind of a policy people are seeking from the government."

The meetings in Tokyo come as governments pledge more than US$1.9 trillion in fiscal support to fight the virus, shore up financial markets and keep businesses from going bankrupt. US President Donald Trump has plans for a US$1.3 trillion economic rescue package that would add to measures unveiled by a slew of other countries including Canada, the UK, France and Australia.

For Mr Abe, the stakes are immense. Private sector economists are predicting a prolonged Japanese recession, the prime minister's approval ratings are slipping and failure to contain the outbreak would likely derail this year's Tokyo summer Olympics.

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How much fresh spending Japan's debt-burdened government can offer, and how the money should be spent will be the key focuses of the meetings. Cash payments of about 12,000 yen (S$158) for each of Japan's 120 million citizens is one option being considered, according to local media reports.

Those handouts would be less generous than the US$1,000 that Mr Trump has suggested giving Americans, but the numbers would still represent an onerous outlay for Japan's government, which has the developed world's biggest public debt load.

What's more, Japan already tried something similar during the global financial crisis, but found that it didn't pack much stimulus punch because people simply saved the money instead of spending it.

Finance Minister Taro Aso, Japan's prime minister back then, told reporters on Thursday that the cash handouts didn't end up being very effective. He denied the idea is under consideration now.

Nevertheless, Mr Abe faces calls even from within his own inner circle to go far beyond the small-bore measures that have been taken so far: things like interest-free loans for small businesses and subsidies to freelancers whose work has dried up.

Etsuro Honda, an adviser to the prime minister, says the economy will need at least five trillion yen in extra spending to get over the virus hit.

Akira Amari, the head of tax policy for Abe's own party, has called for an extra budget, while a group of junior lawmakers in the party are advocating 30 trillion yen in new stimulus-it's a pie-in-the-sky figure, but also a signal of the urgency that's being felt.

Reducing the sales tax that was just raised in October is another idea being floated. Lowering the unpopular levy could be enticing for Abe as a way to try to boost consumer spending and also raise his own flagging support ratings.

But back-pedaling on efforts to shore up government's finances would come at a steep cost amid growing turbulence in credit markets.

"The perception in the Japanese government bond market could shift rapidly" if the sales tax were cut, Citigroup economists Kiichi Murashima and Katsuhiko Aiba wrote in a report on Thursday.

"And this, of course, could prompt rating agencies to lower Japan's sovereign rating." Still, with the Bank of Japan's policy ammunition largely depleted, government spending has become a last bulwark against the crisis.

BOJ governor Haruhiko Kuroda, speaking in parliament on Wednesday, signalled his support for more fiscal support. Bond yields would continue to stay low despite more spending because of the bank's yield-curve control programme, he said. BLOOMBERG