COVID-19 in Japan: State of Emergency Declared, Emergency Economic Measures Issued

The Japanese government declared a state of emergency with respect to seven prefectures on April 7. The government also has issued emergency policies in response to the new coronavirus (COVID-19) pandemic, including the Emergency Economic Measures for New Coronavirus Infectious Disease Control, issued that same day. 

Declaration of State of Emergency

Japan Prime Minister Shinzo Abe declared a state of emergency on April 7 with respect to the seven prefectures with the greatest number of infections and spread: Tokyo, Kanagawa, Saitama, Chiba, Osaka, Hyogo, and Fukuoka.[1] In explaining the background and factors leading to this decision, Mr. Abe referred to the modeling prepared by a panel of experts that suggests that if the amount of physical contact between persons could be reduced by at least 70%, and ideally 80%, the increase of infected persons could be expected to peak after two weeks.

Based on this modeling, Mr. Abe called for people to voluntarily refrain from going out until May 6, 2020 and strive to achieve the 70–80% reduction in contact with other persons. In order to reduce contact with other persons, Mr. Abe strongly suggested eliminating leaving the home for nonessential or nonurgent reasons. As the government had been urging for some time, Mr. Abe again reminded people of the importance of avoiding the three Cs: confined spaces with poor ventilation, crowded places, and close contact with others.

Mr. Abe explained that a citywide lockdown is not being imposed and that the public transportation system and essential utilities, services, and logistics will continue to work as usual.

Emergency Economic Measures for New Coronavirus Infectious Disease Control

Mr. Abe outlined the major points of the Emergency Measures, which address the following five pillars under two phases.

Emergency Support Phase

Preparation of Infectious Disease Control Measures/Medical Services and Development of Medical Treatments

Under the measures addressing infectious disease control and development of medical treatments, the specific provisions discussed included the following:

• Securing and distributing sufficient supplies of masks and disinfectants
• Enhancing testing systems (PCR, antibody test, etc.) and detecting infections at early stages
• Enhancing the medical system and resources (securing sufficient numbers of beds, medical equipment, medical specialists, medical materials, and distribution of medical masks and gowns to hospitals on a priority basis)
• Implementing remote diagnosis and medication guidance systems through the use of internet or phone
• Acceleration of the development of effective medical treatments against COVID-19 (such as Avigan—secure sufficient stock to treat 2 million people by March 2021) and vaccines
• Enhancing the quarantine system
• Providing necessary information to the public
• Providing international emergency support
• Providing childcare support and study support

Employment Maintenance and Business Continuity

A number of measures have been set out intended to address employment maintenance and business continuity efforts.

Employers experiencing a decrease of 5% or more per month in sales or revenue due to the effects of COVID-19 will be eligible to receive a subsidy, subject to a per diem cap of 8,330 yen and certain other limits, to fund a part of the leave allowance payable to employees.[2]

For the period from April 1 to June 30, 2020, the government subsidies for employment adjustments are being expanded. The government will subsidize the leave allowance subject to the per diem cap at the following rates:

Cash-flow support measures will be implemented, including the following:

• Provision of interest-free loans without requiring collateral to sole proprietors and small to medium-sized companies that have experienced drastic losses in their sales or revenues
• Provision of cash-flow support to midsize to large companies by providing emergency response loans through the Development Bank of Japan or Shoko Chukin Bank
• Postponement of payments for landing fees and provision of cash-flow support to airline companies
• Requests to financial institutions to extend new loans and to revise terms and conditions of existing loans in a flexible and expeditious manner
• Implementation by the Bank of Japan of initiatives to provide special funds to facilitate corporate financing (so-called “special funds supplying operation”) for COVID-19 infectious disease control and increase the purchase of commercial paper and corporate bonds (up to 2 trillion yen)

Assistance will be provided to small to midsize business operators facing difficulties continuing business, including the creation of a new benefit plan for business operators whose business income decreases by 50% or more from the previous month, and provision of a payment equivalent to the amount of difference from their business income with respect to the previous year up to the following amounts:

• Small to midsize companies: Up to 2 million yen
• Sole proprietors: Up to 1 million yen

Financial assistance will be provided to households and individuals who are facing economic hardships and having difficulty sustaining their household, including the following:

• Creation of a new assistance plan for households whose income decreased due to a suspension of business, and who are facing economic hardships and having difficulty sustaining their households, by the provision of an assistance payment of 300,000 yen per household, provided one of the below thresholds is met:[3]
  • Households whose monthly income[4] of the head of the household decreased compared with a month before the outbreak of COVID-19, and whose annual income based on the above monthly income would fall below the level at which such person would be exempt from paying personal residence tax (per capita basis) due to low annual income; or
  • Households whose monthly income of the head of household decreased by 50% or more compared with a month before the outbreak of COVID-19, and whose annual income based on the above monthly income would be no more than twice the level of income at which such person would be exempt from paying personal residence tax (per capita basis) due to low annual income.
• An additional 10,000 yen to be paid as a special benefit by increasing the current child allowance payments.
• Exemptions or suspensions from premium payment obligations for National Health Insurance and National Pension Insurance for persons whose salary was reduced and income became less than certain amounts due to COVID-19.

The emergency measures also include the following tax provisions:

• Postponing the payment date of national tax, regional tax, and social insurance premiums for one year without collateral or penalties for business operators whose income is significantly reduced
• Refunding corporate tax by carryback of loss for companies whose paid-in capital is more than 100 million yen and 1 billion yen or less
• Reducing property tax and city planning tax to one-half or zero for small to medium-sized companies that are facing severe business hardships

V-Share Recovery Phase

Recovery of Business Activities Concerted Government and Private Sectors as the Next Phase

• Support travel, transportation, restaurant, event, and entertainment businesses
• Revitalize regional economy

Construction of Strong Economic Structure

• Reform supply chain
• Facilitate overseas businesses; maintain and enhance power to export agriculture, forestry, and marine products and foods; and assist in expanding domestic supply capacity
• Accelerate digital transformation by using remote services
• Implement public investments

Preparation for the Future

• Create a reserve fund for COVID-19 disease control on a larger scale than previous reserves

Scale of Emergency Economic Measures

Breakdown of Five Pillars

Additional Resources

For our clients, we have formed a multidisciplinary Coronavirus COVID-19 Task Force to help guide you through the broad scope of legal issues brought on by this public health challenge. We also have launched a resource page to help keep you on top of developments as they unfold. If you would like to receive a daily digest of all new updates to the page, please subscribe now to receive our COVID-19 alerts.

This is the fourth alert in a series from Morgan Lewis’s investment management team in Tokyo that summarizes how the COVID-19 pandemic has impacted investment fund-related businesses in Japan. For more, read our earlier alerts: COVID-19’s Impact on Notification Filings in Japan, COVID-19’s Impact on Annual Report Filing Requirements in Japan, and Update: COVID-19’s Impact on Filings to Japan’s Kanto Local Finance Bureau.

Contacts

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:

Tokyo
Tomoko Fuminaga
Carol Tsuchida
Narumi Ito

[1] Hokkaido, Aichi, and Kyoto prefectures are not subject to the emergency declaration at this time.

[2] Employers are able to place their employees on a special leave, provided that the employer pays a special leave allowance equal to at least 60% of the employee’s average wages.

[3] On April 9, in order to make it simpler and clearer, the Ministry of Internal Affairs and Communications notified municipalities of nationwide standards for payments. According to the standard, if the monthly income of single household becomes 100,000 yen or less, this single household is eligible for 300,000 yen. If a household has dependents, 50,000 yen per dependent adds to the standard for payment to determine the eligibility. For example, if a household has one dependent, this household is eligible to receive 300,000 yen when the household’s monthly income becomes 150,000 yen or less. If the household has two dependents, the household is eligible to receive 300,000 yen when its monthly income becomes 200,000 yen or less.

[4] Income of a month from February to June selected by the household.

[5] The Japanese government has implemented 2 trillion yen scale emergency measures in February and March in connection with COVID-19 pandemic.