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 surged higher Friday, helped by strong gains in the energy sector after oil prices bounced back.
At 03:55 ET (0855 GMT), the U.K.’s index was trading 2.3% higher, 40 and the were up 4.8%. The pan-eurozone index, the , gained 4.5%.
Additionally, futures traded 6.6% higher at $27.62 a barrel, after soaring 24% Thursday. The international benchmark contract rose 5.8% to $30.12, after jumping 14.4% on Thursday in its biggest one-day gain since September.
This has prompted healthy gains in the oil & gas sector, a part of the market which has been hit hard by the slump in crude prices.
Shares in U.K. oil giant BP (LON:) were up 7.6%, shares in Anglo-Dutch producer Royal Dutch Shell (LON:) gained 7%, Total in France was up 7.6% and Repsol (MC:) (MC:) in Spain 5.5%.
These moves followed U.S. President Donald Trump suggesting he may intervene in the price war between Saudi Arabia and Russia at an “appropriate time”.
U.S. crude and Brent have both collapsed about 40% in the last two weeks since talks between the Organization of the Petroleum Exporting Countries and its allies, including Russia, broke down, resulting in Saudi Arabia ramping up supply.
Yet, while market participants take stock of the many and varied plans to stimulate the global economy given the destruction wrought by the coronavirus pandemic, Deutsche Bank (DE:) gave a timely reminder that times remain difficult.
The German bank warned Friday that the impact of the coronavirus outbreak may affect its ability to meet its financial targets. This is the first time that Germany’s largest lender has sounded the alarm on the outbreak.
Also in Germany, Siemens confirmed that it had 57 confirmed cases of Covid-19 among its workforce.
Economic indicators are thin on the ground in Europe Thursday, although the release of the Bank of England’s Quarterly Bulletin, at 8:00 AM ET (1200 GMT), may be of interest given the central bank’s surprise interest rate cut Thursday.
Elsewhere, at 4:45 AM ET (0845 GMT), were up 2% to $1,509.05/oz, while traded at 1.0786, up 0.9% on the day.
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