More mammoth stimulus in Japan

published 9 April 2020

Japan has declared a state of emergency and announced a $990bn stimulus package in order to deal with the effects of Covid-19. While the number of cases in the world’s third-largest economy remains relatively low for now, a sharp increase in major urban areas in recent days has rattled the authorities. Prime Minister Shinzo Abe has also unveiled a mammoth stimulus plan worth 20% of GDP.

Japan is likely to attract increasing attention from income-seekers jaded by sweeping dividend cuts in other developed markets, Jim McCafferty of Nomura tells Reuters. About 50% of Japanese firms have net cash on their balance sheets, leaving them well placed to honour dividend commitments. By contrast, the same is true for just 18% of the 100 biggest US non-financial firms and just 21% in the UK. The Japanese market currently yields 2.8%.

Part of the bull case for Japan has long rested on the idea that cautious, cash-hoarding Japanese corporations were becoming more like their activist, buyback-happy Western counterparts, writes Jonathan Allum in The Blah newsletter. With Western governments now clamping down on dividends and buybacks, it would be a “supreme irony” if the Covid-19 crisis ends up seeing the rest of the world adopting some of the traditional features of Japanese capitalism, rather than the other way around.