Market news

28 May 2020

Japan needs more stimulus after world’s ‘biggest,’ analysts say

Bloomberg reports that prime Minister Shinzo Abe says Japan’s virus response measures are the world’s biggest, but economists say the packages won’t be the last.

The cabinet approved measures Wednesday that double Japan’s stimulus to about 40% of gross domestic product. Masaki Kuwahara at Nomura Securities is among economists who say a third or even fourth extra budget will be needed because the first two, as big as they are, only limit the economic damage from coronavirus, but don’t boost demand as needed for a strong recovery.

Japan’s latest stimulus package goes well beyond what was expected, but Kuwahara doesn’t expect the recession to be more shallow because of it. Since the measures focus on giving lifelines to households and keeping businesses from going bankrupt, rather than getting people to spend more, Kuwahara isn’t raising his forecasts. He still sees the economy shrinking 23.9% this quarter, and rebounding only 13% the next.

“I’m not changing my view because the new stimulus measures won’t increase demand,” he said. “Just because the size is big, that doesn’t mean the impact will be big.”

It’s not just the dearth of demand that will inevitably require more government spending. There’s also the lure of the Tokyo Olympics, which had to be postponed because of the virus.

Policy makers are hoping to hold the games next year, but Japan will need to get back on its feet quickly to do so, according to economist Yoshimasa Maruyama at SMBC Nikko Securities.

“The economy won’t be able to survive unless they do a third extra budget in the summer,” he said. “Without that, I don’t think the economy will be able to recover to a point where we can host the Olympics.”

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