A new $1.1 trillion stimulus package to stimulate the economy battered by the novel coronavirus pandemic was announced by Japan which includes plans for a significant amount to be spent in direct spending. These plans gave been approved by the Japanese Prime Minister Shinzo Abe’s cabinet to try and prevent the country’s economy from going deeper into recession.
This record stimulus of 117 trillion yen that is planned to be funded partly by a second extra budget was preceded by another 117 trillion yen package that was announced by the government last month.
With this latest stimulus package announcement, the total spending by Japan to combat the economic impact of the virus pandemic now amounts to 234 trillion yen ($2.18 trillion) which is equivalent to about 40 per cent of the total gross domestic product of the country.
The total stimulus spending announced so far by the Japanese government is among the largest announced by many government in the world that various governments to try and support their economies from the economic impact of the pandemic. The United States is the largest package announcer with a total announced package of $2.3 trillion aid programme.
The Ministry of Finance (MOF) of Japan said that the latest package includes 33 trillion yen in direct spending.
“We must protect business and employment by any means in the face of the tough road ahead,” Abe told a meeting of ruling party lawmakers. “We must also take all necessary measures to prepare for another wave of epidemic.”
An additional 31.9 trillion yen in government bonds will be floated by the government under the second supplementary budget for the current fiscal year ending in March 2021 in order to arrange for the finances for the program. That will take the amount of new bond issuance by the Japanese government to a record 90 trillion yen for this fiscal year. The total calendar-base annual market issuance for Japan would hit a record 212 trillion yen including of issuance to roll over debt maturing during the year. Experts claim that this would further strain the finances of the country.
Analysts say that there can be some market volatility because of the surprise move of increase in issuance of super-long bonds even while the Bank of Japan is most likely to keep borrowing costs low and couple that with aggressive bond buying.
“The BOJ’s yield curve control should prevent a spike in long-term interest rates,” said Chotaro Morita, the chief bond strategist at SMBC Nikko Security. “Volatility in the JGB market will depend on the BOJ’s ability to control its bond purchases.”
Measures such as an increased medical spending, financial aids to companies struggling to pay rent and larger subsidies to firms hit by a drop in sales will be included in the new Japanese package.
The government has also set aside a total of 10 trillion yen in reserves to be put to use in the eventuality of a possible second wave of infections of the novel coronavirus.
(Adapted from HindustanTimes.com)