March 8, 2020 / 1:00 AM / 23 days ago

RPT-Japan's Abe vows to offer free loans to firms hit by virus outbreak

TOKYO, March 7 (Reuters) - Japanese Prime Minister Shinzo Abe said the government will create a special loan programme to offer zero-interest loans to companies hit by fallout from the coronavirus epidemic.

The move will be part of a second package of measures the government plans to map out on Tuesday, which will also include subsidies for workers who need to take time off work to care for their children as schools are shut down, Abe said on Saturday.

“For the time being, our priority in terms of helping the economy will be to protect jobs and keep businesses running,” Abe told a government meeting to deal with the virus outbreak. “We will come up with unconventional, powerful measures so small and mid-size companies nationwide can continue with their operations despite the current severe circumstances.”

Policymakers are under pressure to support Japan’s economy, on the cusp of recession, as school shutdowns, event cancellations and travel bans hit retailers nationwide.

Under fire for his handling of the crisis, Abe has pledged to focus over the next couple weeks on halting the spread of the virus in Japan.

Reflecting investors’ concern over the prospect of debt distress, the cost of insuring exposure to sovereign and corporate debt rose almost across the board on Friday, including that of Japan.

Abe said a government-affiliated lender will offer loans effectively at no interest and without collateral to small firms that have seen sales slump from the virus outbreak.

Japan’s banking regulator will monitor financial institutions to ensure they are not pulling money out from ailing borrowers under strain from the outbreak.

Such government moves will likely affect the Bank of Japan’s decision on what measures it takes to support the economy at its upcoming policy-setting meeting, on March 18-19.

Sources have told Reuters the BOJ may take steps this month to ensure that companies hit by the coronavirus outbreak do not face a financial squeeze before the end of the current fiscal year in March.

The number of domestic infections has risen to 1,149 cases, public broadcaster NHK said on Saturday, including 10 new infections in Osaka.

The outbreak comes at a critical time for Japan, raising the spectre of a potential second quarter of negative economic growth just as the country prepares to host the summer Olympic Games in July and August.

Abe said the second package of measures will include steps to prevent the spread of the virus, ramp up medical support and provide financial assistance to local governments coping with the aftermath of school shutdowns.

Reporting by Leika Kihara Editing by Leslie Adler

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