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Japan ends special COVID loans for struggling households; total tops $9 bil.

Staff handle documents relating to the repayment of special loans, at the Special Loan Administration Center of the Tokyo Council of Social Welfare in August 2022. (Mainichi/Yuki Nakagawa)

TOKYO -- The Japanese government had provided more than 1.42 trillion yen (about $9.81 billion) in special interest-free loans to help combat the economic impact of the coronavirus pandemic as of Sept. 24 this year, according to Japan National Council of Social Welfare data. That is over 20 times the total lent in the aftermath of the 2008 global financial crisis.

    The special COVID-19 loans, for which applications closed on Sept. 30, supported several million applicants for over 2 1/2 years, but questions remain over whether the assistance is enough for recipients to rebuild their lives. It is also unclear how the government will support people in need as the start of loan repayments looms in January 2023.

    Before the spread of the coronavirus, support for people in need was provided through Japan's "social welfare fund system." This was originally targeted at low-income households, but a special provision was added in response to the coronavirus outbreak, and the system was quickly expanded to cover people whose income fell due to the pandemic. A senior welfare ministry official commented, "We were able to respond speedily by utilizing an existing system rather than creating a new one."

    Under the special loan system, the upper limit on microlending to cover living expenses for struggling households was increased from 100,000 yen to 200,000 yen (from about $690 to $1,380), and the maximum amount of general support funds for daily life use was increased from 600,000 yen (about $4,100) -- a 200,000-yen monthly payment for up to three months -- to 1.8 million yen (about $12.400) for a family of two.

    Since the pandemic was an emergency, the government allowed self-reporting documents to be used as proof of reduced income, and it did not rigidly demand expected repayment outlines, which were required before the introduction of the new system. An official at the Japan National Council of Social Welfare, which handled the loans, reflected, "We were able to act quickly on a single welfare ministry notice."

    From the commencement of the special loans in March 2020 until Sept. 24 this year, total lending reached around 1,424,200,000,000 yen. Altogether about 3.34 million special loans were extended, consisting of 1.61 million microloans and 1.73 million general support loans.

    During the three years of the so-called "Lehman shock" (from fiscal 2009 to fiscal 2011) following the collapse of U.S. investment bank Lehman Brothers, the Japanese government extended 70.7 billion yen ($490 million) in special loans. Since the economic crisis mainly affected the manufacturing sector, a simple comparison can't be made, but the amount this time was around 20 times higher.

    One factor that pushed up the total was that the loan application deadline was extended 10 times in tandem with COVID-19 infections waves. A welfare ministry official disclosed, "There was initially talk within the ministry last spring of halting the special loans, but infections were spreading and the prime minister's office put a stop to that. Since the move (of halting loans) would affect low-income households, we were more cautious about the decision compared to the special measures on employment adjustment subsidies (to cover part of companies' allowances for workers on leave)."

    However, amid a recent decline in coronavirus infections, the number of loan applications has decreased and health minister Katsunobu Kato announced at a Sept. 26 news conference that the special loans would be wound up at the end of that month, claiming there was a need to return to "a normal mode."

    Due to the prolonged effects of the pandemic, however, some people have gone bankrupt even after getting the special loans.

    A 31-year-old woman in Osaka Prefecture who lives with her husband and their infant daughter is one. She was working as a masseuse, but customer numbers dropped amid the pandemic, and then she found out that she was pregnant. Her shifts were reduced by half, and her income fell from 250,000 yen (about $1,730) a month to just 150,000 yen (roughly $1,000).

    Her husband was unemployed at one stage and, though she tried to keep the cost of meals down to 500 yen a day, she couldn't even scrape up the 1,000 yen she needed to visit an OB-GYN clinic. She started using the government's microloans in June 2021, and by January this year, she had borrowed 1.25 million yen.

    She became able to live normally, but with customers continuing to stay away, she was effectively out of a job. It was hard to find another while she was pregnant, and the only other income she had was 10,000 to 20,000 yen (about $70 to $140) a month from part-time work. The 130,000 yen (roughly $900) a month that her husband brought home supported the family.

    The special loans do not need to be paid off if the household is exempt from residential tax, but the woman says this doesn't apply to her. Combined with a credit card loan of about 1.48 million yen (about $10,200), the woman's debt swelled to about 2.73 million yen ($18,900), and she declared bankruptcy in July this year.

    The proportion of bankruptcies among those who have received special loans is not known, but according to the Tokyo Council of Social Welfare, at least 1,247 people in Tokyo have commenced bankruptcy proceedings.

    (Japanese original by Yuki Nakagawa, Lifestyle and Medical News Department)

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