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 are expected to edge lower Thursday, with investors still contemplating the possibility of several months of declining economic activity despite an increasingly robust policy response that reached a new high late on Wednesday as the European Central Bank unveiled its biggest anti-crisis program yet.
The European Central Bank launched a 750 billion euro ($820 billion) emergency bond purchase scheme after an unscheduled meeting Wednesday. It will buy government and company debt across the eurozone, including that of troubled Greece and Italy.
This announcement came after the bank’s 25-member governing council held emergency talks by phone late into Wednesday evening.
The move follows an unprecedented and large step up in global co-ordination by central banks, governments and regulators since the start of this week to cushion the economic impact of the coronavirus.
The U.S. Federal Reserve on Sunday slashed key rates by 100 basis points, boosted asset purchases and has flushed the system with liquidity. While the U.S. Senate on Wednesday passed legislation providing more than $100 billion to confront the growing coronavirus outbreak.
Earlier Thursday, the Reserve Bank of Australia dropped its key rate to 0.25%, a record low, and the second cut this month. It also announced its first-ever quantitative easing program.
Yet, it’s debatable how long these gains will last as the coronavirus outbreak has inflicted huge damage on the world economy, Bank of Japan Deputy Governor Masayoshi Amamiya said on Thursday, and the impact is likely to last for some time.
Airlines will be in focus Thursday, after Deutsche Lufthansa added its voice to the chorus saying the industry may not survive without state aid if the coronavirus pandemic lasts for a long time.
Economic indicators are thin on the ground in Europe Thursday, while oil markets have seen some small gains after three days of relentless selling.
Panic buying by British shoppers escalated on Wednesday with shelves stripped bare by alarmed customers hoarding for the coronavirus isolation, prompting Tesco and Sainsbury’s to restrict purchases.
Prime Minister Boris Johnson, who has faced criticism for acting too slowly and too cautiously to tackle the coronavirus outbreak, said on Tuesday that there was no reason to stockpile and that food supplies were safe.
In supermarkets across the land, though, shoppers were spooked. Aisle after aisle were left empty with just ice cream and chocolate Easter eggs remaining at many major stores. Huge queues snaked around some supermarkets on Wednesday, Reuters reporters said.
Sainsbury’s is to restrict customer purchases to combat panic buying. Tesco is allowing shoppers to purchase just two packs of certain items such as dried pasta, toilet roll and long life milk.
Britain’s big grocers, including market leader Tesco, Sainsbury’s, Asda, and Morrisons, along with discounters Aldi and Lidl, have struggled for over a week to keep shelves stocked.
Aldi on Monday became the first UK grocer to introduce rationing, limiting customers to buying four items of any one product during each visit.
Morrisons cautioned it was facing extraordinary times.
“We are currently facing unprecedented challenges and uncertainty dealing with COVID-19,” the company’s chairman Andrew Higginson, and its CEO David Potts said.
The supermarket industry says it is working closely with suppliers to keep food moving through the system and is making more deliveries to stores to get shelves re-stocked.
It says supplies are still coming in from Europe, despite lock-downs in Italy, Spain and France.
One executive said the government was only just starting to understand the enormity of the crisis for the industry.
“They’re in asking questions mode, they’re certainly not in telling us anything mode. They’re trying to understand what we’re seeing rather than telling us to do anything specific.”
The second source added: “Government are asking questions, listening and planning, but we’d appreciate a bit more help to get things moving.”
The source said the government could help by lifting restrictions on driver hours and relaxing Groceries Supply Code of Practice (GSCOP) regulations which slow the industry down.
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.
China’s economic growth slowed to its weakest in nearly 30 years in 2019 amid a bruising trade war with the United States and sputtering investment, and more stimulus steps are expected this year to help avert a sharper slowdown.
But data on Friday also showed the world’s second-largest economy ended the year on a firmer note as trade tensions eased, suggesting a raft of growth boosting measures over the past two years may finally be starting to take hold.
This year is crucial for the ruling Communist Party to fulfill its goal of doubling GDP and incomes in the decade to 2020, and turning China into a “moderately prosperous” nation.
Fourth-quarter gross domestic product (GDP) rose 6.0% from a year earlier, data from the National Bureau of Statistics showed, steadying at the same pace as the third quarter, although still the weakest in nearly three decades.
That left full-year growth at 6.1%, the slowest annual rate of expansion China has seen since 1990. Analysts had expected it to cool from 6.6% in 2018 to 6.1%.
Policy sources have told Reuters that Beijing plans to set a lower economic growth target of around 6% this year from last year’s 6-6.5%, relying on increased infrastructure spending to ward off a sharper slowdown.
On a quarterly basis, the economy grew 1.5% in October-December, also in line with expectations and the same pace as the previous three months.
Real estate investment rose 9.9% in 2019, slowing slightly from 10.2% in the first 11 months of the year. But growth in December slipped to a two-year low as authorities continued to clamp down on speculation to keep home price rises in check.