United Kingdom

ALEX BRUMMER: Japan turns on the taps with a £732bn fiscal package

When it comes to loading up the big guns, Japan is market leader. Prime Minister Shinzo Abe is unsheathing a £732billion fiscal package to shore up demand as the country places its cities under a state of emergency to defend itself against Covid-19.

The scale of the package amounts to 20 per cent of national output, which is proportionally a far bigger dollop of help than Donald Trump’s £1.6trillion for the much worse-stricken United States.

It is more than the £663billion unveiled by Germany (including £350billion of UK-style loan guarantees) and the £70billion of direct borrowing costs, or 3 per cent of GDP, pledged by Chancellor Rishi Sunak.

Japanese Prime Minister Shinzo Abe is unsheathing a $990bn (£732bn) fiscal package to shore up demand as the country places its cities under a state of emergency

Of all the G7 countries, Japan has long been the boldest in using government borrowing to keep the economy afloat. 

Abe is acting against a background of plunging household spending, falling national output in the first quarter and the debilitating blow of the cancelled Olympics.

Persuading its citizens to spend is always a struggle so Japan is relying on fiscal policy to do the trick as in the lost decade of the 1990s and after the financial crisis. 

The larger proportion of the package will go on public spending, with big investments in healthcare. Cash handouts will go to ordinary households and small enterprises.

Much will be funded by issuing Japanese government bonds or JGBs. These will end up on a government balance sheet where the national debt already tops 200 per cent. That compares to the UK’s 77.4 per cent pre-emergency pile of debt.

How will this be financed? There is still public appetite among Japanese domestic investors to buy JGBs. 

But the principal buyer will be the Bank of Japan, the G7 central bank closest to ‘monetising’ its debt, converting it into credit or cash.

That is a policy which Bank of England Governor Andrew Bailey ruled out this week. A long lockdown may yet require Bailey to do ‘whatever it takes’.

Tech flight

Among the reasons to be cautious about financially-driven buyers is that you never quite know where the assets, including valuable intellectual property, will end up.

In the case of the capture of Imagination Technologies by Canyon Bridge for £550million in 2017, there should have been no mystery. 

In spite of its reassuringly American name, Canyon is Chinese-controlled and the US had barred it from buying tech assets.

With much of the world’s eyes diverted by Covid-19, an attempted coup by investor China Reform, a state entity, has been seen off due to the current aversion to Beijing.

The idea of a reckoning with China over responsibility for a contagious disease is morally abhorrent. 

What is unacceptable has been the insouciance of successive UK administrations to deals in which the assets could end up in wrong hands.

This is why this paper lined up against the Soft Bank takeover of chip maker Arm Holdings, Melrose’s absorption of GKN and, most recently, Advent’s purchase of Cobham. 

There was nothing intrinsically wrong with any of these transactions other than the fact that, at some point in the life cycle of the companies purchased, they likely will be sold on to buyers with no interest in keeping the technology or sensitive national security assets in the UK.

The Chinese limb of Arm Holdings has already been sold off to a Beijing state-controlled enterprise by Japan’s Soft Bank. 

Given the current difficulties of Soft Bank, after the governance implosion at property sharing pioneer We Work, who is to say that the whole future of the Cambridge-based smart-chip creator is not in danger?

Culture secretary Oliver Dowden has clambered onto his high horse and is promising legislation to prevent valuable UK tech and national security assets falling into the wrong hands.

By the time we see the new regime, the carcass may have been eaten clean.

Bottom fishing

There is no better time for snaring assets at knockdown prices than during a downturn. 

Warren Buffett is master of this, grabbing stakes in Goldman Sachs and General Electric when they were on their knees in the financial crisis.

Ivan Glasenberg of Glencore looks to be on a similar track, offering £264million for the minority stake in Argentina’s world-beating soy crushing plant Renova.

The stake is held by bankrupt family group Vicentin. Fortune favours the brave.

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