Japan raises costs by at least 137 billion USD because of the pandemic

The promise of the Japanese Prime Minister Shinzo Abe for “huge” incentives will include additional spending of at least 137 billion USD, funded in part by bonds covering budget deficits.

In this way, the world’s third-largest economy joins global efforts to soften the economic blow caused by the coronavirus pandemic.

Although the amount of debt issued is likely to be modest, it will place a significant market focus on Japan’s plight, at a time when the market, shaken by the virus, is pushing investors to foreclose even assets such as government bonds in cash.

“We need to come up with large, powerful economic and fiscal measures that respond to the enormous scale of the impact of the coronavirus epidemic”, Abe told parliament on Monday. “Depending on the situation, we will take measures that go beyond the scale of those taken after the crisis that led to the bankruptcy of Lehman Brothers”, the Japanese prime minister added.

The Bank of Japan (BoJ) is also poised to expand incentives for a second consecutive month in April if the contagion causes job cuts and capital costs large enough to disrupt economic recovery, according to sources familiar with the regulator’s policy.

“The key will be whether the Japanese economy can recover, as the BoJ predicts, after the temporary downturn caused by the coronavirus outbreak”, said one source, who requested anonymity. “If additional monetary incentives are needed, the ECB is ready to act. In doing so, it will take into account the expected impact of the government stimulus package”, added the source

The next meeting of the NBS to review key interest rates is April 27-28.

The government is working on a package of measures to combat the expanding economic downturn caused by the coronavirus, which will include direct fiscal spending of more than 15 trillion JPY (137 billion USD), several government officials said.

This will be roughly equivalent to the amount spent by Japan to deal with the aftermath of the 2008 Lehman Brothers crash.

Adding to this the loans and other steps that do not involve direct costs, the package size will exceed 30 trillion JPY, officials said.

The government will provide details of the package after parliament adopts the state budget for the fiscal year beginning in April on March 27th.

Japan’s ruling Liberal Democratic Party will draft its stimulus project on March 30, which will form the basis of the government’s plan.

Given the size of the package and the expected tax revenue cuts due to the shrinking economy, the government will issue bonds covering the budget deficit to finance part of the spending, officials said.

A Treasury spokesman said nothing was resolved regarding the debt issue.

The Dai-ichi Life Research Institute’s forecast shows that the spread of the coronavirus can wipe out 3.8 trillion JPY from the Japanese economy worth 540 trillion JPY.