Japan is likely to include assistance for small businesses in an economic stimulus package it is to compile after Britain’s shock vote to leave the EU, Japanese Minister of State for Economic and Fiscal Policy Nobuteru Ishihara said yesterday.
Japanese policymakers also said financial markets are starting to calm down after the Brexit vote last week, but added that they want to remain ready to respond to a further sudden jump in the yen, which could jeopardize the economy.
Ishihara, speaking to reporters, did not answer questions on the size of the stimulus package or how it would be funded, but sources told reporters the government is willing to spend at least ¥10 trillion (US$97.81 billion) due to worries about exports, domestic demand and Japanese firms operating in Britain.
“There are concerns about lessening the impact of the British referendum on Japan’s small and medium-sized companies,” Ishihara said.
“Taking steps to provide liquidity to small firms could be a big factor in economic stimulus steps that we compile,” he added.
Ishihara spoke after a meeting of the Council on Economic and Fiscal Policy, the government’s top advisory panel.
Before Britain’s referendum last week, Japanese Prime Minister Shinzo Abe had said he planned bold stimulus steps this autumn to revive his economic agenda, and now the stakes have risen.
Japan’s government is on edge as Brexit initially caused declines in global stocks and pushed the yen to a two-and-a-half-year high versus the US dollar.
There have not been any serious signs of a liquidity crunch yet, but policymakers are closely monitoring market moves, Ishihara said.
Companies yesterday asked the Bank of Japan to loan them US$1.47 billion in its regular dollar-supplying operation, far greater than its last such operation before Britain’s vote.
While high compared with recent periods, yesterday’s amount was still less than the tens of billions of dollars that the central bank supplied in operations after the collapse of Lehman Brothers Holding Inc in 2008.
A rising yen threatens Japan’s economy, because it weighs on exporters’ earnings and increases deflationary pressure by lowering import prices.
“Extremely nervous moves are seen in the forex [foreign exchange] market,” Japanese Chief Cabinet Secretary Yoshihide Suga said.
“So that such moves do not continue, we will closely watch markets with a sense of urgency and even more attention than before, and will respond firmly as needed,” he added.
Sterling has suffered a much more brutal sell-off, tumbling to the lowest in more than 30 years versus the dollar.
Uncertainty about the economic relationship between Britain and the EU, combined with confusion over who is to replace outgoing British Prime Minister David Cameron could further test the G7’s crisis response mechanism.
“Before G7 held an emergency conference call, each country had little idea about how much foreign reserves the Bank of England has to support the pound and we thought we might need to jointly support it in case of selling,” Japanese Minister of Finance Taro Aso said.
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