Japanese Prime Minister Shinzo Abe has ordered his government to take “all necessary steps” to mitigate the effects of the virus outbreak on the economy, including tapping state budget reserves, Economy Minister Yasutoshi Nishimura said on Friday.
The government will compile emergency measures to respond to the repercussions of the outbreak as early as next week, Abe was quoted as saying by Japan’s Jiji news agency.
“There’s a risk the coronavirus outbreak could hurt consumption, so we need to watch developments carefully,” Nishimura told reporters after a regular cabinet meeting.
“The impact on inbound tourism is also a concern,” he said.
Japan’s household spending fell at a much faster pace than expected in December, sliding for the third straight month in a sign consumers are having a hard time coping with a sales tax increase.
While Friday’s reading excludes the effects on spending from the virus outbreak originating in China, analysts expect it will hurt consumption in the coming months as tourism takes a hit.
“The warm winter is having a large impact as seasonal goods aren’t being sold,” said Takeshi Minami, chief economist at Norinchukin Research Institute.
“But consumer confidence is falling and taken together with the virus outbreak one can’t have high hopes of consumption for January-March.”
A government official said the mild weather negatively impacted the sales of many goods in December, such as winter vegetables, while purchases of stoves and heaters also suffered from a fall in spending due to the sales tax hike.
Lower spending on eating out and entertainment were also factors, the official said.
Household spending slipped 4.8 percent in December from a year earlier, government data showed on Friday, coming in well below a median forecast for a 1.7 percent decline.
Following the tax increase to 10 percent from 8 percent, the first such rise in four-and-a-half years, it tumbled 5.1 percent in October, the fastest pace of decline since March 2016 and dropped 2.0 percent in November.
The Bank of Japan (BOJ) expects the economy to recover this year, holding onto hope that global growth will rebound around mid-year and provide a lift to exports.
But the uncertainty on how the spread of the coronavirus could affect China – a significant engine of global growth – has now cast doubt on the BOJ’s optimistic economic projection.
Japan is set to host the 2020 Summer Olympics over July and August. The CEO of the Tokyo Organising Committee has said the outbreak could “throw cold water” on the growing momentum of the Games.
Finance Minister Taro Aso told reporters he has asked government-affiliated financial institutions to ensure companies in need of funds to cope with the outbreak are able to borrow smoothly.
“To prevent the spread of new coronavirus from severely affecting business lending, we’ve decided today to ask for support from public and private financial institutions,” said Aso, who also oversees Japan’s banking sector.
Another 41 people on a cruise liner off Japan tested positive for coronavirus on Friday, bringing the total confirmed from the ship to 61.
Japan has already flown citizens back on four flights from Wuhan, China – the epicentre of the virus outbreak.