The huge cost of the coronavirus pandemic is upending Japan’s seven-year experiment to rescue the economy from its debt timebomb, as recession fears prompt calls for “helicopter money” – unlimited spending bankrolled by the central bank.
Days after Prime Minister Shinzo Abe launched a nearly $1 trillion stimulus package to battle the pandemic’s financial fallout, some ruling party lawmakers are calling for even bigger spending.
Already, the government plans to boost bond issuance to a five-year high of 147 trillion yen ($1.35 trillion), or 30% of the size of Japan’s economy, to pay for the stimulus.
But even as global governments and central banks pull out all the stops to reduce the economic fallout, Japan is a grim reminder that a debt timebomb may be inescapable.
Japan could issue even more debt, as economy minister Yasutoshi Nishimura has said the latest package won’t be the last if growth remains in danger.
The missed opportunity to fix Japan’s finances may squeeze spending for the younger generation and constrain the country’s options for supporting one of the world’s fastest-ageing populations.
It also marks a death knell for premier Shinzo Abe’s fiscal policy, which relied on higher tax revenue backed by strong economic growth – instead of painful spending cuts – to restore Japan’s fiscal health, analysts say.
“Abenomics has kept the economy in good shape for quite a long time,” said former Bank of Japan board member Takahide Kiuchi, pointing to Abe’s stimulus policies, launched in late 2012 to pull the country out of deflation.
“If that time had been spent fixing Japan’s finances, the government would have had more scope to boost spending without relying excessively on debt issuance,” he said. “The government and the BOJ were complacent. They’re responsible for this mess.”
European stock markets pushed higher Thursday, as investors took in the strong gains on Wall Street overnight but remained cautious ahead of the resumption of talks on how to fund the massive government borrowing needed to support the region’s economy through the crisis.
At 3:35 AM ET (0735 GMT), the U.K.’s index traded 3.4% higher, 40 was up 1.9%, while the rose 2.3%. The broader based Europe index climbed 2%.
Eurozone finance ministers are set to resume their virtual gathering to debate the best way of financing the response to the Covid-19 crisis, which is set to result in a sharp expansion of budget deficits. Outside the currency union, the U.K. government has signalled it will increase direct borrowings from the Bank of England.
The Eurogroup meeting had originally started Tuesday, but disagreements persisted over the conditions for loans to hard-hit countries like Spain and Italy under the eurozone bailout fund, the European Stability Mechanism, as well as whether to issue joint debt known as ‘coronabonds’ as part of a wider recovery plan.
In corporate news, UBS and Credit Suisse , Switzerland’s two biggest banks, said Thursday that they had decided to partially postpone the payment of their dividend for 2019 until later this year. UBS shares rose 1.9%, while Credit Suisse shares rose 4%.
Staying in the banking sector, top executives at HSBC and Standard Chartered announced they would forgo their bonuses for 2020 and donate part of their salaries to the fight against the Covid-19 pandemic. HSBC shares climbed 1.2% and Standard Chartered shares rose 3.5%.
The two banks said at the start of this month that they would cancel their dividends and suspend buybacks.
Elsewhere, shares in Suez rose 2.4% after the French water and water management company said it was reducing, but not suspending, its 2019 dividend.
Wall Street had closed sharply higher Wednesday amid hopes the U.S. may turn a corner in its battle against the coronavirus as early as next week. The rose 3.4%, or 780 points, the up 3.4%, while the added 2.6%.
The most important data of the day will be the weekly in the U.S., at 8:30 AM ET (12:30 GMT).
Economists expect that claims eased off only a little from the previous week’s record 6.65 million to 5.25 million, according to forecasts compiled by Investing.com.
Oil prices have pushed higher Thursday, ahead of a crucial meeting where the Organization of the Petroleum Exporting Countries and its allies are expected to agree a cut to production of up to 10 million barrels per day over 90 days.
At 3:35 AM ET, futures traded 5.2% higher at $26.39 a barrel. The international benchmark contract rose 3.1% to $33.87.
Elsewhere, rose 0.4% to $1,691.30/oz, while traded at 1.0868, up 0.1%.
European stock markets have pushed firmly higher Tuesday, as investors anticipate more financial aid to help bolster the region’s battered economies.
The EU’s finance ministers will be in focus Tuesday as they meet to try and agree a list of measures to mitigate the impact of the coronavirus on the region’s economies. If enough headway is made, the bloc’s leaders could debate and then rubber stamp a deal later in the week.
The subject of joint ‘coronabonds’ is sure to be raised again, but more likely options include credit lines from the euro zone’s bailout fund, more lending from the European Investment Bank and the use of the joint long-term budget directly for guarantees for leveraged borrowing.
This follows on from reports late Monday that another stimulus package could come from Capitol Hill. Another round could come by May and be around $1.5 trillion, Fox Business reported, citing sources briefed by the White House and Congressional leaders.
In corporate news, shares in Thales rose 3% despite it becoming the latest major European company to slash its dividend, suspend profit guidance and top up liquidity in response to the coronavirus crisis. The French aerospace and defense supplier said it had withdrawn the proposed final instalment of its 2019 dividend, saving 430 million euros.
Elsewhere, luxury groups LVMH and Kering joined Hermes and Chanel in saying they wouldn’t tap a state scheme for wage subsidies to help them through the crisis.
Shares in WH Smith soared over 7% after the U.K. retailer said it has raised 165.9 million pounds ($203.5 million) via the share placing, which will strengthen its balance sheet and liquidity position.
Oil prices pushed higher Tuesday as investors focused on the possibility of a global cut in crude production. OPEC+, which includes Russia, is set for a virtual meeting on Thursday that many expect to end with an agreement.
The group is likely to agree to cut production Thursday as long as the United States joins in cutting output, Reuters reported late Monday, citing three OPEC+ sources.
The American Petroleum Institute will issue its measure of weekly U.S. oil stockpiles after the bell Tuesday. Last week it reported a huge build of more than 10 million barrels.
At 3:30 AM ET, futures traded 3.5% higher at $27.00 a barrel. The international benchmark contract rose 2.7% to $33.94.
Elsewhere, rose to a new seven-year high of $1,742.20 before retreating a little to $1,700.10/oz, while traded at 1.0870, up 0.7% on the day.
The Bank of Japan kept monetary policy steady and nudged up its economic growth forecasts on Tuesday, as the government’s stimulus package and receding pessimism over the global outlook took some pressure off the central bank to top up stimulus.
The BOJ also signaled cautious optimism over the global economy, saying that risks surrounding the outlook have “subsided somewhat.”
Markets will now scrutinize BOJ Governor Haruhiko Kuroda’s post-meeting briefing for clues on how his views on the pros and cons of his stimulus could affect policy decisions this year.
As widely expected, the BOJ kept its short-term interest rate target at -0.1% and a pledge to guide 10-year government bond yields around 0%.
It also maintained a guidance that commits to keeping rates at current low levels, or even to cut them, until risks keeping it from achieving its 2% inflation goal subside.
In a quarterly review of its forecasts, the BOJ revised up its growth projection for the fiscal year beginning in April to 0.9% from an estimate of 0.7% growth made in October, helped by a boost from the government’s fiscal stimulus package.
Japan’s economy is likely to continue expanding moderately as a trend” as the impact of slowing global growth on domestic demand will be limited, the BOJ said in the quarterly report.
The world’s third-biggest economy ground to a near halt in July-September and is likely to have contracted in the final quarter of last year as the U.S.-China trade war knocked exports.
Oil and gas companies must boost investment in low carbon energies or face an increasing backlash that could threaten their long-term profits and social acceptance, the International Energy Agency (IEA) said on Monday.
In a report with the World Economic Forum presented in Davos, the IEA said oil and gas companies face a critical challenge as the world increasingly adopts clean energy transitions to curb global warming.
Around 15% of global energy-related emissions come from the process of getting oil and gas out of the ground and to consumers, the IEA said. Energy-related green house gas emissions rose to a record high in 2018.
“Every part of the industry needs to consider how to respond. Doing nothing is simply not an option,” IEA’s Executive Director Fatih Birol, said in a statement.
The companies are under pressure to cut emissions from their operations and from their products as used by customers, as well as to increase investments in cleaner energies. Targets by oil firms to cut their emissions and switch to cleaner energies vary widely.
The IEA said another key move by the sector would be to boost investments in the cleaner fuels – such as hydrogen, biomethane and advanced biofuels.
“Within 10 years, these low-carbon fuels would need to account for around 15% of overall investment in fuel supply if the world is to get on course to tackle climate change,” it said.
So far, average investment by oil and gas companies in non-core areas such as renewables, is still limited to around 1% of total capital spending, mostly on solar and wind projects.
The ruble fell on Wednesday after President Vladimir Putin announced the resignation of the Russian government. The announcement comes against the background of speculation that Putin is planning to tweak the constitution to avoid having to leave power when his current term as president ends in 2024.
The announcement also comes only days after the ruble hit a nine-month high amid rising confidence in emerging markets and declining hopes for further interest rate cuts from the Bank of Russia.
By 8:40 AM ET (1340 GMT), the dollar was at 61.58 having spiked as high as 61.68 on the news. The movement is still relatively modest, given the currency’s historic volatility.