Japan’s economy in turmoil

The Bank of Japan has expanded the total size of its funding packages for cash-strapped companies from about $700 billion reported last month to $1 trillion. While they announced on Tuesday that they would keep monetary conditions stable and hold on to their expectation that the economy would slowly rebound from the coronavirus pandemic on it’s on, suggesting that they have taken ample measures to sustain recovery for now. The BOJ remains focused on steps to ease corporate funding strain.

“Given markets have calmed down and the economy appears to be bottoming out, there’s no reason for the BOJ to take action anytime soon,” said Hiroshi Shiraishi, senior economist at BNP Paribas Securities.

“Fiscal policy will play a main role in responding to the virus fallout, so the central bank will continue to indirectly help the government by keeping borrowing costs low,” he said.

The BOJ kept its yield curve control targets at -0.1 per cent for short-term interest rates and 0 per cent for long-term rates in a widely expected move. The central bank has also made no significant improvements to its programmes to alleviate the pressures of corporate finance, including a loan facility aimed at channeling funds to businesses.

Due to the way it is designed, the amount of money to be pumped out via the programmes will reach 110 trillion yen ($1 trillion) if more loans are taken out via government schemes, the central bank said.That was larger than an estimate of 75 trillion yen made in May, as the government expanded the range of eligible loans under a second stimulus package.

Japan’s economy appears to have hit bottom and is eyeing a recovery from the damage caused by the coronavirus pandemic, its finance minister said, underscoring cautious optimism spreading among policymakers after the relaxation of lockdown measures.

“We’ve succeeded in putting a floor on the economy, which seems to have hit bottom. How strong the recovery will be depends not just on domestic conditions but overseas developments,” Finance Minister Taro Aso told parliament on Friday.

In April, Prime Minister Shinzo Abe proclaimed a state of emergency telling enterprises to shut down and people to remain at home, a development that dealt a serious blow to income and sales by corporations. Although the state of emergency was lifted in late May, economists estimate that in the current year, after falling into recession in January-March, the economy experienced more than a 20 percent annualized contraction.

Last year, Japan was a tourist mecca welcoming 31.9 million foreign visitors. That was a peak after seven consecutive years of growth.But in a sudden turn of events, prolonged coronavirus travel bans have brought Japan’s tourism industry to a standstill, with a 99.9 percent fall in tourists in April, the high time for cherry blossom viewings.The tourism Industry in almost all countries around the world have been devastatingly affected due to the pandemic.

However, the new domestic travel improving initiative from the government — the “Go To” program unveiled last month — has since been delayed after reports of an unsustainable administrative and office expense allocation. The “Go To” program is a collaborative public-private partnership that provides consumers purchasing travel goods from approved distributors in the four groups, tentatively named Go To Ride, Go To Eat, Go To Case, and Go To Shopping Strips, discount vouchers of 50 to 20 percent off. The initiative was dubbed “murky” and “untransparent” by the opposition.

Adding to the controversy is the bidding method the government adopted to attract business contractors. Before the official bidding start date, the Ministry of Economy had interviewed Japanese global advertising giant Dentsu 10 times. But the minister for economy explained that meetings had been held with 50 businesses along with Dentsu and that the 10 interviews with Dentsu had been consultations for reference due to the company’s experience in “implementing projects of unprecedented scale.”

In response to criticisms the government said it would suspend the open recruitment for business contractors and would revise the budget from the ground up to ensure unnecessary expenses are removed. The tourism recovery campaign was expected to launch in July, but to the disappointment of struggling local businesses a new start date has yet to be determined.

Source: 1.https://in.reuters.com/article/us-japan-economy-boj/bank-of-japan-holds-fire-pledges-1-trillion-to-struggling-firms-idINKBN23N0D5