2020 was meant to be a year of triumph for Tokyo. The reality has proved very differentby David Warren / June 3, 2020 / Leave a comment
With a 117 trillion yen (£877bn) stimulus announced on 27th May, to be funded by the second supplementary budget in two months, Japanese Prime Minister Shinzo Abe hopes to kickstart Japan’s economy back into activity.
In May, the world’s third-largest economy entered recession, shrinking by 3.4 per cent in the first quarter of 2020, after a 6.4 per cent decline in the last quarter of 2019. Then, it was Typhoon Hagibis and a consumption tax hike that depressed consumer demand; in 2020 came the evaporation of Chinese demand as the country tackled Covid-19.
With the global pandemic taking hold in March and Japan’s own state of emergency, which the prime minister lifted two days before the stimulus package, the economic prospects for the second quarter look bad. Gross Domestic Product is predicted to fall by up to 20 per cent—a trillion dollars.
This is a grim outcome after seven years of “Abenomics,” aimed at stimulating the economy back to steady growth under stable political management. What is the right way forward for a major industrial power facing a pandemic-induced contraction of this kind? The need is to keep Japanese business afloat, and the stock markets rising. The two assistance packages announced since April totalled just under 234 trillion yen and have been accompanied by a government/Bank of Japan joint statement guaranteeing close co-operation to support struggling firms, with the Bank promising to buy yet more government debt to keep bond yields down.
The money will help finance companies in difficulties, subsidise rents, provide assistance to local economies and fund additional healthcare provision. A small amount is going to help Japanese firms move their supply chains away from China, although Japanese officials are quick to stress that this is simply sensible diversification—and not an anti-Chinese measure.
Japan’s public debt/GDP ratio is the highest in the world, and has been for more than a generation. Now is clearly not the moment to worry about adding more to the debt pile: as Finance Minister Taro Aso has said: “We are determined to protect the Japanese economy.” Some analysts see a third package as a possibility. There is loose talk in some quarters of a credit downgrade, although Japan’s ability to borrow mainly from itself for…