Japan for $4b package, not yet eyeing extra budget

Japan unveiled on Tuesday a second package of measures worth about $4 billion in spending to cope with the fallout of the coronavirus outbreak, focusing on support to small and mid-sized firms, as concerns mount about risks to the fragile economy.

The package, totalling 430.8 billion yen ($4.1 billion) in spending, shows how much pressure policymakers are under to bolster fragile growth and stem the risk of corporate bankruptcies, as event cancellations and a slump in tourism threaten to hit the broader economy hard.

To help fund the package, the government will tap the rest of this fiscal year’s budget reserve of about 270 billion yen, Japanese Prime Minister Shinzo Abe said. The move is likely to affect what the Bank of Japan (BOJ) decides at its March 18-19 policy review.

The central bank will aim to ensure that companies hit by the virus outbreak do not face a financial squeeze before the end of the current fiscal year in March, Reuters has reported.

Finance Minister Taro Aso said on Tuesday there was no need yet for a bigger extra budget, adding that the fallout from the outbreak so far had not reached the scale of the 2009 financial crisis.

“We need to ascertain the current situation,” Aso told reporters after a cabinet meeting, adding “There’s no saying” whether the government needs an extra budget.

As well as support for businesses, the new package will fund improvements to medical facilities and provide subsidies to working parents who must take leave because of closed schools.

Aso said financing will focus on small and tiny businesses in need of financing over the next two to three weeks.

The financial watchdog has urged credit associations and regional banks to hold hearings with small businesses about their financial situation, he added.

Japan will boost to 1.6 trillion yen its special financing for small- and mid-size firms hit by the virus, up from about 500 billion yen previously announced, Abe said.

Reuters first reported the second package’s size earlier on Tuesday and the financing on Monday.

As part of the second package, Prime Minister Shinzo Abe has said a government-affiliated lender would offer funds effectively at no interest and without collateral to small firms whose sales slumped in the outbreak.

The virus has infected more than 111,000 people and killed more than 3,800 globally, with the accompanying economic disruption undermining Japan’s export-led economy.

The world’s third-largest economy shrank by the most since a 2014 sales tax hike in the quarter to December, intensifying fears of an economic downturn.

The outbreak comes at a critical time for Japan, shattering hopes of a gradual economic recovery fuelled by strong domestic demand just as it prepares to host the summer Olympic Games in July and August.

The epidemic has prompted heavy selling of riskier assets and a scramble into assets such as the yen, perceived as safe havens during times of financial distress.  Japanese stocks settled higher on Tuesday after a volatile session that saw shares fall on worries over the economic impact of the coronavirus epidemic and an oil price crash before short-covering lifted markets.

Reuters