Japan yesterday pledged huge spending cuts amounting to US$83 billion over two years as it works to bring down the industrialized world’s biggest debt mountain.
The cuts — amounting to an average reduction of more than 4 percent of current annual spending — comes days after the IMF warned again over Tokyo’s borrowings.
The moves were outlined in the government’s mid-term fiscal plan which called for cuts of ￥8 trillion (US$83 billion) between April next year and March 2016.
There were few details about where the reductions would be made, and they come after Japanese Prime Minister Shinzo Abe pledged to boost public spending to stoke Japan’s tepid economy.
Another key part of Abe’s plan, dubbed “Abenomics,” was the Bank of Japan’s huge monetary easing plan, unveiled in April, as Tokyo looks to counter years of growth-sapping deflation.
Japan’s annual budget is about ￥93 trillion, with about 40 percent of that spending coming from borrowing which has created a debt pile that is more than twice as big as Japan’s economy — the worst among industrialized nations.
The country has not faced a public debt crisis like the kind seen across the eurozone, largely because most of its low interest rate debt is held domestically rather than by international creditors.
However, the IMF and others have warned that Japan must follow through on key fiscal and structural reforms to the economy, another key plank of Abe’s plan but a difficult sell to many of Japan’s cossetted industries.
On Monday, the IMF called on Tokyo to adopt a “credible” strategy to raise sales taxes to boost government revenue and deregulate the farming sector, among others.
Meanwhile, the Bank of Japan issued an upbeat assessment of Tokyo’s efforts to counter growth-sapping deflation yesterday, as it left its vast monetary easing program unchanged.
In a widely expected move, the central bank said its board voted unanimously to keep the current package of measures in place after a two-day policy meeting.
The bank said the outlook for the world’s third-biggest economy was looking brighter, while early signs of rising prices were good news for its efforts to hit a two-percent inflation target in as many years.
“Japan’s economy is starting to recover moderately,” the bank said yesterday, pointing to better times ahead for key export markets. “Overseas economies as a whole are gradually heading toward a pick-up, although a lackluster performance is partly seen... Inflation expectations appear to be rising as a whole.”
The bank added it would continue its easing plan “as long as necessary” to hit the price target and “make adjustments as appropriate.”
The statement also points to a rise in business and public investment, private consumption and industrial production, while exports were also improving.