Japan’s economy is roughly the size of a small continent’s. And now, its government is spending a fifth of that entire output in a single shot. The $989 billion stimulus package Prime Minister Shinzo Abe announced April 6 is not just big. It is, measured against the nation’s GDP, the largest peacetime economic intervention any developed country has attempted in response to the coronavirus pandemic.
The numbers alone tell a story of scale. The package totals 108 trillion yen. That is nearly double the 56 trillion yen Japan threw at the 2008 financial crisis. Back then, the global banking system was collapsing. Today, the enemy is a virus that has forced entire cities to shut down. Japan has recorded over 3,600 confirmed COVID-19 cases and 85 deaths, according to Johns Hopkins University. Those figures are modest compared to the United States or Italy. But the government’s own draft document called the pandemic the “biggest crisis” the global economy has faced since World War Two. That language is not hyperbole. It is the frame for the spending.
The package is a blunt instrument. It includes direct cash handouts to households and small businesses. It offers tax breaks and zero-interest loans to companies. The goal is to keep workers on payrolls and prevent a cascade of bankruptcies. Abe described the plan as “an unprecedentedly massive scale of economic package worth 108 trillion yen, or 20 percent of GDP, following the immense damage to the economy from the novel coronavirus.” Officials have not yet specified how much cash each person or family will receive. Those details will be finalized in the coming weeks.
But the headline figure masks a complication. The 108 trillion yen total appears to include 26 trillion yen in measures already launched in 2019 to counter the US-China trade war. That earlier spending was aimed at softening the blow from Beijing’s trade practices and the resulting global uncertainty. Critics might argue that repackaging old money inflates the headline. The government counters that the total represents the full breadth of its economic response. Either way, the fresh spending is enormous.
The stimulus amounts to roughly 20 percent of Japan’s GDP. To put that in context, the United States’ $2 trillion CARES Act represents about 10 percent of American GDP. Japan is committing twice that share. The reason is structural. Japan’s economy was already fragile before the virus hit. Consumption tax hikes in 2019 slowed growth. The trade war with China had dampened exports. Now, the pandemic has shut down tourism, retail, and manufacturing. A wave of bankruptcies and layoffs was a real threat. The package is designed to stop that wave before it starts.
Subsidies for companies that keep employees on payroll are a key component. These are similar to the furlough schemes in Europe. The idea is to preserve the employer-employee link so that when the economy reopens, businesses can restart quickly. Zero-interest loans will help firms cover rent, utilities, and other fixed costs. Tax breaks will reduce the cash drain.
Japan has a history of large fiscal stimulus. But this one is different. The 2008 package was reactive, aimed at stabilizing a financial system in freefall. This package is preemptive. It is trying to prevent a health crisis from becoming an economic depression. The government is betting that spending 20 percent of GDP now is cheaper than cleaning up the wreckage later. The world is watching to see if that bet pays off.
