Japan plans huge stimulus package to cushion blow from coronavirus

Japan's government will soon kick off work on a stimulus package that could be worth 10% of the country's economic output, joining global efforts to combat the hit to their economies from the coronavirus pandemic. With the state budget for next fiscal year has passed parliament on Friday, Prime Minister Shinzo Abe will order his cabinet in the coming days to ready the package to be delivered in April, government officials and ruling party lawmakers say.

The package, which will include steps like cash payouts to households and non-direct spending measures such as credit lines and guarantees, may top $515 billion, said the officials, who declined to be named as the plan has not been finalized. That would exceed the amount Japan spent to battle the 2009 financial crisis.

Actual spending would be worth around $138 billion or more, they added. Part of the package will be funded by money set aside under a previous stimulus package worth 26 trillion yen ($239 billion), which was crafted in December to forestall the damage to the economy from the U.S.-China trade war.

Most of the spending will be financed by issuing deficit-covering bonds, which would add to a debt burden already twice the size of Japan's $5 trillion economy, the officials said. The government is ready to adopt more steps as needed given deepening impacts from the virus spread, they added.

Leaders of the Group of 20 major economies have pledged to inject $5 trillion in spending into the global economy to limit job losses from the virus. The new virus has infected more than half a million people and killed over 24,000 around the world while disrupting global trade, tourism, and supply chain and prompting city lockdowns, layoffs, and bankruptcies in countries from Europe to North America.

In Japan, a rise in domestic coronavirus cases has stoked worries of tougher social distancing restrictions at a time a decision to postpone the Tokyo Olympics Games threatens to push a fragile economy into recession. "For now, I don't think we need to call a state of emergency. But it's very important to respond appropriately since the Tokyo metropolitan area has a huge population," Abe told parliament on Friday.

Lawmakers are floating ideas such as cash handouts, "beef" and "fish" shopping vouchers to support households, financial backstops for tourism and restaurant firms, who have been hit hard by the virus. Steps such as subsidies and tax breaks are also being eyed to maintain jobs and prevent bankruptcies, increase sickbeds and production of masks, develop vaccines and build infrastructure to promote teleworking.

The government's stimulus package will take into account a proposal by the ruling Liberal Democratic Party (LDP) on spending measures, to be presented to Abe on Monday. "What's important now is facilitating corporate financing and providing income support for people in need, rather than near-term stimulus," said Ryutaro Kono, chief economist at BNP Paribas Securities.

($1 = 108.6600 yen)