TOKYO | The Japanese lower house passed a record new extraordinary budget of around 32 trillion yen ($ 399 billion) on Wednesday needed to fuel a second gigantic plan to support the national economy, which has been severely affected by the pandemic.
More than a third of this windfall is to be used to finance a government fund to provide zero-rate loans to struggling small and medium-sized businesses, in addition to new credit facilities from the Bank of Japan (BoJ).
The rest should be used to finance various measures, such as helping companies to pay their rents and their employees on short-time work, subsidizing municipalities in crisis, strengthening the health system and medical research, or even offering bonuses to nursing staff, poor students as well as single-parent families.
The budget is expected to be finally approved on Friday by the Upper House of Parliament.
It is to form the core of a second plan to massively support the economy of 117 trillion yen ($ 1,458 billion at current prices).
This is exactly the same amount as a first support plan announced in early April, which also required a huge budget extension, notably to finance a lump sum assistance of 100,000 yen ($ 1,220) allocated to each resident of the country.
In total, all state aid to support businesses and households in the country is expected to reach the astronomical sum of 234 trillion yen (more than $ 2890 billion), most of which takes the form of loans.
Debt record digging
Japan has been relatively spared from the health pandemic, with 17,251 cases of contamination identified so far, with 919 dead.
But faced with an increase in cases and the risk of saturation of hospitals, the government had established a state of emergency in the country in April-May, in order to encourage people to stay at home as much as possible and certain businesses non-essential to close temporarily.
These preventive measures have completely reduced household consumption, which was already in bad shape before the coronavirus crisis.
Household spending fell 11.1% in April from a year earlier, a record since the start of comparable statistics in January 2001, according to official data released in early June.
This augurs a dizzying fall in Japanese gross domestic product (GDP) in the second quarter, when the country already entered into recession at the start of the year, a first since 2015.
With the government planning to finance its exceptional measures with debt, the country’s public debt should briskly exceed 250% of GDP this year, a new record (compared to around 240% last year according to the International Monetary Fund).
However, “it is worth it to stimulate the economic recovery”, Naoya Oshikubo, economist at SuMi Trust, said in a recent note.
Despite its colossal level of debt, Japan continues to borrow without difficulty and at rates close to zero, thanks in particular to the massive bond buyouts led by the BoJ.
However, the efficiency of the distribution of public aid, which sometimes comes up against the complexity of the Japanese bureaucracy, raises questions and risks delaying their real effects on the economy.