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Japan to roll out huge stimulus package next week as pandemic pain deepens

FILE PHOTO: Passersby wearing protective face masks, following an outbreak of the coronavirus disease (COVID-19), are reflected in mirrors at a shopping center in Tokyo

By Leika Kihara and Daniel Leussink

TOKYO (Reuters) - Japanese Prime Minister Shinzo Abe said on Friday a stimulus package to combat the coronavirus pandemic will be rolled out next week, and target small firms and households hardest hit by social distancing policies that are affecting consumption.

The package will include spending on medical supplies, as well as cash payouts to small firms and households facing sharp falls in income, Abe said.

The government will also urge private financial institutions to join government-affiliated lenders in offering zero-interest rate loans to cash-strapped small and midsized firms, he said.

"We'll compile the package next week," Abe told parliament.

"We'll deliver in a short period of time a targeted, bold package" that will help the economy achieve a V-shaped recovery, he said.

A senior ruling party official told reporters on Friday he has agreed with Abe to offer 300,000 yen ($2,800) in cash payments per household that suffers a certain degree of income falls from the pandemic.

The government is set to approve a supplementary budget on Tuesday to fund the package.

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Supply chain disruptions, travel bans and social distancing policies triggered by the pandemic have hit Japan's economy, which was already on the brink of recession.

Economy Minister Yasutoshi Nishimura said the government's stimulus measures will be delivered in two stages.

The first package will focus on immediate steps to ease corporate funding strains and protect jobs. The second batch will focus on boosting demand, particularly for industries currently hit by social distancing policies such as tourism and event organisers, he told a news conference.

Abe has pledged to lay out a huge stimulus plan to combat the virus that will exceed the 57-trillion-yen ($525 billion) package compiled after the collapse of Lehman Brothers in 2008.

Sources have said Japan will fund the package by boosting government bond issuance by $149 billion, adding to what is already the industrial world's heaviest debt burden at more than twice the size of Japan's $5 trillion economy.

Rating agency S&P affirmed Japan's sovereign debt credit rating and kept the outlook positive on Friday, despite the government's plan to boost spending to battle the economic fallout from the coronavirus outbreak.

Analysts expect Japan's economy, which shrank in the final quarter of last year, to suffer two more quarters of contraction as the pain from the pandemic deepens.

Hiroshi Ugai, chief economist at JPMorgan Securities Japan, expects the world's third-largest economy to contract 3.1% this year, with any rebound later in the year to be modest.

"The government's planned economic stimulus package would help address immediate problems that could lead to declines in household and corporate income," he said. "But it would not be enough to change the big picture for Japan's economy."

($1 = 108.4700 yen)

(Reporting by Leika Kihara and Daniel Leussink; additional reporting by Tetsushi Kajimoto and Hiroko Hamada; Editing by Chris Gallagher. Simon Cameron-Moore and Raju Gopalakrishnan)