Criticism came quick after the Japanese government this week announced its largest-ever stimulus package, worth 108 trillion yen ($990 billion), roughly 20 percent of GDP. Coming as Tokyo also announced shutdowns affected almost half the population, including in the capital, the government is now stepping up its effort as coronavirus cases continue to rise and as the economy looks certain to face back-to-back quarters of contraction.
Japan’s economy was already weakening before the pandemic crisis, and after being forced to suspend the Olympic Games that were supposed to be held in Tokyo this summer, the government had to rush through emergency measures the likes of which Japan hasn’t known in decades.
A national crisis
Prime Minister Shinzo Abe rightly called this the “biggest crisis” the Japanese economy has faced since the Second World War. As a percentage of GDP, Japan’s stimulus package is much larger than those introduced in the US and UK. It is roughly half the nominal size of the package US President Donald Trump last month signed off on, yet Japan’s economy is only a quarter of the size of America’s.
But Toshihiro Nagahama, chief economist at the Dai-ichi Life Research Institute, described the stimulus package as a “puffed up,” while David Marshall, senior analyst of Asia-Pacific financials at CreditSights told CNBC that “Japan’s Ministry of Finance is I think notorious, we can say, for coming up with big numbers to please politicians.”
What’s the actual amount?
As part of the headline-grabbing 108 trillion yen figure, the government includes previously announced stimulus measures, as well as money put aside to manage economic problems unrelated to the coronavirus crisis. 19.8 trillion yen of the entire package, for instance, was already allocated in December to deal with the consequences of a hike in consumption taxes last year.
Moreover, the good proportion of this stimulus package does not account for direct state spending, but instead the expectation state losses as the government has given companies tax holidays and a moratorium on welfare contributions. According to the plan announced by Abe, only roughly a third of the entire stimulus package (39 trillion yen) will be allocated to direct spending.
Other economists have criticized the stimulus package for offering too little to individuals. Some $50 billion will go towards cash transfers to households and small to medium-sized enterprises. Small or medium-sized firms that have experienced a loss of more than half of revenue can obtain government grants of up to $18,350.
Affected households will be able to receive $2,760 from the state in relief, but the process to get this money is far more complex than similar handouts introduced in the US and UK.
Japan stimulus package: More to come
Analysts say most households will struggle to live on this amount of money for three months, and if the economy remains affected for longer than that (which is most likely) the government will need a fresh batch of payments, which haven’t been factored into the latest stimulus package.
Another criticism is that the stimulus package is too optimistic and too focused on the long-term. Jun Saito, senior research fellow at the Japan Center for Economic Research, said in a CNBC interview that instead of stimulating the economic, measures are needed to “prevent the free falling of the economy.”
Indeed, good proportion of the new funds will go towards supporting consumption and investment once the crisis has passed, such as financial support from the government for individuals traveling to tourism centers.
It is most probable that Tokyo will need to top-up this current stimulus package in the coming months. At the same time as approving the stimulus package this week, the Cabinet also announced a month-long state of emergency for Tokyo and several other prefectures, affecting just under half the country’s population.
The Japanese government is in an unenviable position. Even if its stimulus package works, and the economy weathers the looming global crisis and emerges in a relatively healthy state, it is likely to then face a debt crisis.
The government has announced a record sale of additional bonds worth more than 18 trillion yen to pay for parts of the stimulus package, with the principle buyer expected to be the Bank of Japan. Yet analysts worry that this will increase state debt to unmanageable levels – the national debt was already twice as much as GDP before the crisis hit – which future Japanese governments will have to struggle with for a long time.