Japan eyes tax cuts as Bank of Japan injects cash to shore up virus-hit economy

Japan eyes tax cuts as Bank of Japan injects cash to shore up virus-hit economy

© Reuters. Japan eyes tax cuts as Bank of Japan injects cash to shore up virus-hit economy© Reuters. Japan eyes tax cuts as Bank of Japan injects cash to shore up virus-hit economy

By Kaori Kaneko

TOKYO (Reuters) – Japanese policymakers are considering new stimulus measures to tackle the economic fallout from the coronavirus, aiming to further bolster markets after the central bank’s biggest cash injection since the global financial crisis.

The government will consider tax cuts and other measures to battle the damage from the outbreak, economy minister Yasutoshi Nishimura said on Tuesday.

With global stock markets reeling from the crisis, the Bank of Japan pumped $30.272 billion into the financial system with an 84-day dollar funding operation, the largest since December 2008.

A group of ruling party lawmakers proposed last week that the government temporarily eliminate Japan’s 10% sales tax and prepare a 30 trillion yen ($282 billion) supplementary budget for spending. Although extreme, the proposal highlights the seriousness of issues facing the world’s third-biggest economy.

Sales tax revenue was important to fund social welfare costs, but the government must take all available measures to support the economy, Nishimura said.

“We’ll look into a wide range of options on tax, fiscal policy and deregulation,” he told reporters after a cabinet meeting when asked about the lawmakers’ proposal.

The government’s decision to implement a long-mooted increase in sales tax last October to 10% from 8% has been widely blamed for hurting the world’s third-biggest economy, which shrank an annualized 7.1% in the final quarter of last year.

Many analysts expect another contraction in the current quarter amid the virus outbreak, which would mean two straight quarters of negative growth – the technical definition of a recession.

Nishimura’s remarks come after Prime Minister Shinzo Abe said on Saturday the proposal to lower sales tax was among options worth considering to support the economy.

Policymakers across the globe are scrambling to deal with the fallout from the epidemic that has sent global stocks into a tailspin. Abe’s government is working on a huge fiscal spending package, acknowledging an agreement by Group of Seven leaders to use all available policy tools to support growth.

“Business confidence is tanking to levels comparable to those during the Lehman crisis” in 2008, Nishimura said.

Japan’s Nikkei stock average () has fallen 28% so far in 2020. The benchmark traded either side of even on Tuesday following the BOJ’s cash injection, which exceeded the $17 billion offered by the U.S. Federal Reserve in its 84-day operation on Monday.

The BOJ’s move came after the world’s six major central banks took a joint step to provide more cash dollars on Sunday as a rout in financial market over the past week led to a scramble by banks and companies for dollar liquidity.

Yet, even after the Fed’s emergency 100-basis-point rate cut over the weekend and the renewal of its quantitative easing program to increase cash in markets, there was little noticeable easing in the rush for dollar financing.

However, funding constraints could ease gradually after big dollar injections from the BOJ and other central banks, said Yusuke Ikawa, Japan strategist at BNP Paribas (PA:).

“Today’s results suggest that there is now abundant dollar cash, at least among people who have access to the BOJ. The key point now is whether this money will spread to various companies and others that need it,” he said.

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