(Bloomberg) -- Following Donald Trump's unveiling of $2 trillion in stimulus including cash payments, Japan is revisiting the idea of handouts despite their perceived failure during the global financial crisis.
Cash handed out in Japan after the collapse of Lehman Brothers had little impact as consumers pocketed the money instead of spending it. This time round, Prime Minister Shinzo Abe's administration hopes to engineer a better result by targeting the cash and scaling back its objectives as it unleashes its biggest-ever economic package.
Japan Plans Record 60 Trillion Yen Stimulus as Virus Spreads
Finding the right strategy for one of the government's flagship stimulus measures is likely to be critical for public perceptions of how well Abe has responded to the economic side of the virus crisis.
Bloomberg economist Yuki Masujima says cash handouts in Japan after the failure of Lehman Brothers in 2008 weren't effective at boosting spending. He estimates that 80% of the cash was saved or used to pay down debt.
Even Taro Aso, who was Japan's prime minister at the time of the financial crisis, said the handouts back then were ineffective, though his current post in charge of the nation's coffers may have heightened his caution about spending big.
If saving levels were high among Japanese consumers over a decade ago, they are even higher now. Following a brief splurge ahead of last year's sales tax, households are now spending less than 65% of their income, close to a record low.
Read more: Japan's Lehman Experience Suggests Abe Will End Up Spending More
Trying to learn from the past, the ruling Liberal Democratic Party is recommending multiple payments only to those who have lost income as a result of the virus outbreak, rather than the blanket spreading of cash to everyone, regardless of income, that garnered so much criticism for Aso.
Targeted measures could make the individual payments more sizeable and more effective. While the party didn't stipulate how much each payment would be, local media reports suggest they could be almost 10 times as big as the 12,000 yen ($111) to 20,000 yen payouts last time.
Payments of 100,000 yen would be a big help to low income earners, said Hideo Kumano, chief economist at Dai-Ichi Life Research Institute and a former Bank of Japan official.
Like Masujima, he sees the main benefit of cash payments as a means to lift sentiment rather than a way of boosting private consumption or reinvigorating the economy. For now, many people simply need a lifeline, he argues.
“Until recently I completely disagreed with the idea of cash handouts but with the pandemic I'm starting to feel they are OK if they help people make ends meet, pay their rent or buy necessities,” Kumano said. “One condition is that they should be given to people in a financially weak position such as non-regular workers, freelancers or elderly people.”
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