Japanese government is ready to deploy economic stimulus flexibly
The economy is expected to rebound from its annualised 3.9% contraction in the Q1, but analysts expect recovery to be gradual, with service sector consumption a particular weak spot
Japan stands ready to pump more money into the economy to ease the pain of a prolonged pandemic, the top government spokesman said, nodding to growing political calls for additional stimulus to prop up growth.
Less than two weeks before hosting the Olympics, Tokyo goes into its fourth COVID-19 state of emergency from Monday through Aug.22, fuelling fears of extended pain for restaurants hit by shorter hours and a ban on alcohol consumption.
“First of all we must proceed with anti-infection measures and vaccination in cooperation with the citizens, and provide support for businesses and people in need,” Chief Cabinet Secretary Katsunobu Kato said in a debate programme on public broadcaster NHK.
“Then we want to flexibly take economic measures without hesitation,” Kato said, without mentioning the size or timing of further stimulus measures.
Lawmakers from Prime Minister Yoshihide Suga’s Liberal Democratic Party have escalated calls for a new relief package, with party heavyweight Toshihiro Nikai saying an extra budget of around 30 trillion yen ($270 billion) is needed.
The world’s third-largest economy is expected to rebound from its annualised 3.9 per cent contraction in the first quarter, but analysts expect the recovery to be gradual, with service sector consumption a particular weak spot.
Government spending is constrained by public debt at 2.5 times Japan’s annual economic output - the heaviest debt burden in the industrial world, inflated by massive stimulus packages rolled out over the past year.
Suga, who must call a general election later this year, said on Thursday the government wants to focus on such areas as corporate financing, employment and restaurants, and wants to deliver as early as possible.
He said the government would respond flexibly as he was tackling the coronavirus hit to the economy with an economic package always in mind.
Meanwhile the Japanese bank lending rose at its slowest annual pace in more than eight years in June as corporate fund demand to weather coronavirus-linked cash constraints subsided, central bank data showed last Thursday.
Total deposits parked at commercial banks continued to rise and hit a fresh record last month, the data showed, as companies and households held off on spending.
The figures underscore the view that many companies are emerging from the pandemic’s immediate hit, but holding onto cash on uncertainty over the economic outlook.
“The balance of bank lending remains at elevated levels, but corporate fund demand seems to be subsiding,” a Bank of Japan (BOJ) official told reporters at a briefing.
Total outstanding loans held by Japanese banks rose 1.4 per cent in June from a year earlier to 578 trillion yen ($5.23 trillion), BOJ data showed, the slowest growth rate since January 2013.
Major banks saw lending fall 1.6 per cent last month, posting the first year-on-year decline since November 2012, as some big borrowers paid back loans thanks to higher profits.
Total deposits held by banks stood at 834 trillion yen, hiting a fresh record.
Japan has not experienced the kind of explosive COVID-19 outbreaks seen in many other countries but has had more than 800,000 cases and 14,800 deaths.
Slow vaccine rollouts and a resurgence in infections are likely to force authorities to impose another state of emergency in Tokyo through Aug. 22, puting more pressure on a fragile economic recovery. Meanwhile the Bank of Japan (BOJ) is expected to slash this fiscal year’s economic growth forecast in fresh quarterly projections due out next week, sources say, as prospects of another state of emergency for Tokyo threaten to dent consumption.
But the central bank is likely to maintain its view the world’s third-largest economy is headed for a moderate recovery as robust exports and output offset some of the weakness in consumer demand, said four sources familiar with its thinking.
The expected downgrade highlights Japan’s struggle to contain the COVID-19 pandemic, as slow vaccine rollouts and a resurgence in infections force authorities to declare a state of emergency for Tokyo just 16 days before the Olympic Games begin.
“The foundations of a recovery are in place, but the timing may be delayed somewhat,” as the curbs weigh on the economy’s expected rebound in the current quarter, one of the sources said, a view echoed by three other sources.
In most recent forecasts made in April, the BOJ expected the economy to expand 4.0 per cent in the current fiscal year ending in March 2022, higher than a 3.6 per cent growth projected in a Reuters poll.