Japanese Govt to Increase Subsidies and Low Interest Loans to Prop Up Employment Following Emergency Declaration

The Japanese government plans to increase support for small and medium-sized businesses in order to minimize job losses as the economic fallout from coronavirus continues to spread. Many SMEs are expected to fall into greater dire straits once Prime Minster Abe officially declares a state of emergency later today. The state of emergency declaration will apply to Tokyo, Osaka, and five other prefectures and will likely last a month.

Authorities do not have the power to force companies to shutdown, but it is expected that many companies will bow to social pressure to temporarily suspend business activities and comply with the government’s request for people to avoid all unnecessary outings. SMEs account for 99.7% of all the companies in Japan, so even a one-month suspension of business activities might mean that millions of people would temporarily be out of work. To minimize this possibility, the government has set aside funds to provide subsidies and low-interest loans to help SMEs stay afloat as part of the massive 108 trillion yen ($990 billion) emergency economic package that will be passed on April 7th. The package will be equal to about 20 percent of Japan’s GDP (JapanToday).

Companies in the tourism, hospitality and restaurant sectors have already been hit hard by the spread of the coronavirus. With the state of emergency expected to last past the Golden Week holidays, traditionally a peak travel period, it is forecast that companies and workers in these industries will be disproportionately affected.

Increase in employment adjustment subsidies

In order to help companies keep workers on their payroll, the government plans to increase “employment adjustment subsidies” to companies by the end of June. Companies receiving employment adjustment subsidies are expected to allow their employees to take a leaves of absences, while paying them at least 60 percent of their wages. In normal circumstances, SMEs applying for employment adjustment subsidies would receive subsidies equal to two-thirds of wage costs, but the emergency stimulus package will allow subsidies to be raised to 90 percent, with a maximum daily amount of ¥8,330 per employee per day.

The types of employees covered by the subsidies will also be expanded. Usually, employment adjustment subsidies are only applicable to full-time employees who have been enrolled in the unemployment insurance system for six months. The emergency measures will also allow new employees and part-time employees to be covered.

Interest-free loans

The government is also providing interest-free loans to companies experiencing severe sales drops and unable to cover their operating expenses. These loans are being processed through public and private financial institutions. As of the end of March, about 140,000 applications have already been made to the Japan Finance Corporation and the Credit Guarantee Association, with about 82,000 already approved.

Loans are issued within a few days of application. The loan application process has also been streamlined and allows the omission of some documents usually required for underwriting. Still, major banks have not been able to keep up with the surge in applications, so the government will start allowing prefectural-level financial institutions to start handling these loans. Basically, the national government will cover interest costs incurred by regional and shinkin banks which extend loans to companies through this program. Shinkin banks are cooperative regional financial institutions serving small and medium enterprises and local residents.

The emergency stimulus package will also give struggling companies a grace period for tax payment and social security fees totaling 26 trillion yen to help them continue business operations (JapanToday).

 

Source: Nikkei newspaper, April 6, 2020 (in Japanese), JapanToday, April 6, 2020, SME Support Japan

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