Investment Institute

Macroeconomics

Japan’s COVID-19 response: Crisis met with strong economic package, but is it enough?

19 June 2020 (3 min read)

Key points

Japan’s government has approved a second package of economic measures, totalling some ¥117.1tn (21.5% of GDP), roughly the same as the previous boost adopted in April. This brings the total package to 43% of GDP.
The headline includes significant contributions from private sector projects and financial assistance via government-affiliated financial institutions. It is not obvious how much these facilities will be used, and they do not constitute direct fiscal spending. Excluding these items, additional spending is a smaller ¥57.6tn, or 10.6% of GDP, boosting the deficit by 11 percentage points (ppt) to 14% in 2020
Overall, net direct stimulus would be ¥30.7tn (5.5% of GDP), after we allow for other financial support and budget reserves. Historic estimates of fiscal multipliers suggest an impact of 2.6 percentage points of GDP
The Bank of Japan has strengthened its monetary policy to support the government’s action. It is likely to use its Yield Curve Control policy extensively, reducing the risks of rising financing costs. In parallel, it has promoted targeted measures to ensure smooth credit provisions throughout the banking sector.

The COVID-19 pandemic has resulted in an unprecedented response from governments and central banks worldwide. In previous papers we have considered the steps the US has taken with fiscal and monetary stimulus to alleviate the shock to its economy¹ and considered the impact in China² .

In this piece, we focus on the different measures promoted by the Japanese government and Bank of Japan (BoJ).

YWdlLCBELiwg4oCcQ09WSUQtMTkgVXBkYXRlIOKAkyBVUyBwb2xpY3kgcmVzcG9uc2XigJ0sIEFYQSBJTSBNYWNybyBSZXNlYXJjaCwgMyBKdW5lIDIwMjA=
WWFvLCBBLiwg4oCcQ2hpbmE6IEZ1ZWxsaW5nIHJlY292ZXJ5IHdpdGggYW4gZXh0cmEgcG9saWN5IGtpY2vigJ0sIEFYQSBJTSBNYWNybyBSZXNlYXJjaCwgOSBKdW5lIDIwMjAu

Not for Retail distribution

This document is intended exclusively for Professional, Institutional, Qualified or Wholesale Clients / Investors only, as defined by applicable local laws and regulation. Circulation must be restricted accordingly.

This document is for informational purposes only and does not constitute investment research or financial analysis relating to transactions in financial instruments as per MIF Directive (2014/65/EU), nor does it constitute on the part of AXA Investment Managers or its affiliated companies an offer to buy or sell any investments, products or services, and should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or a personalized recommendation to buy or sell securities.

It has been established on the basis of data, projections, forecasts, anticipations and hypothesis which are subjective. Its analysis and conclusions are the expression of an opinion, based on available data at a specific date.

All information in this document is established on data made public by official providers of economic and market statistics. AXA Investment Managers disclaims any and all liability relating to a decision based on or for reliance on this document. All exhibits included in this document, unless stated otherwise, are as of the publication date of this document. Furthermore, due to the subjective nature of these opinions and analysis, these data, projections, forecasts, anticipations, hypothesis, etc. are not necessary used or followed by AXA IM’s portfolio management teams or its affiliates, who may act based on their own opinions. Any reproduction of this information, in whole or in part is, unless otherwise authorised by AXA IM, prohibited.

Issued in the UK by AXA Investment Managers UK Limited, which is authorised and regulated by the Financial Conduct Authority in the UK. Registered in England and Wales, No: 01431068. Registered Office: 22 Bishopsgate, London, EC2N 4BQ. In other jurisdictions, this document is issued by AXA Investment Managers SA’s affiliates in those countries.

Risk Warning

The value of investments, and the income from them, can fall as well as rise and investors may not get back the amount originally invested.