Japan is sticking for now with its goal to balance its budget by the end of March 2026 even after approving record spending for next year.
“As we have written in this year’s government plans, we are still looking to reach a primary balance in the fiscal year 2025,” Japanese Minister of Finance Shunichi Suzuki said shortly after the Cabinet approved a record initial budget of ￥107.6 trillion (US$941 billion) for the year starting in April.
“We will reconfirm this by the end of March, after we have taken a closer look at COVID-19’s impact on Japan’s fiscal health,” Suzuki said.
Economists see the goal of balancing the primary budget by the end of March 2026 as unrealistic. The goal cannot be achieved this decade, according to the baseline scenario in a separate projection.
The primary balance excludes debt servicing costs.
However, the latest budget does offer encouraging signs that Japan is moving out of crisis mode and might be able to review efforts to start reining in the developed world’s biggest debt load over the coming years.
New issuance of bonds to finance the latest budget is down sharply to ￥36.9 trillion, although that still means Japan is financing more than one-third of its spending with debt.
Actual expenditure next year could also rise further, given the possibility of extra budgets, but with the economy taking less of a hit with each new variant of SARS-CoV-2, final outlays for the next fiscal year are more likely to end up lower than this year.
A jump in tax revenue also suggests that the government’s spending blitz during the COVID-19 pandemic has helped limit scarring to the economy and that the recovery would gain momentum once concerns over the Omicron variant of SARS-CoV-2 eases.
In this fiscal year, Japan put together three extra budgets that added ￥73 trillion to total spending.
“If you kill off parts of the economy, everything else falls down like a line of dominoes,” Sumitomo Life Insurance Co economist Hiroaki Muto said. “In that sense, Japan’s government should get a pass mark for its current situation.”
However, Muto, like other economists, does not see the 2025 goal as possible.
Many analysts see it more as a symbolic effort to reassure investors that Japan does take its debt predicament seriously.
Even before last month’s extra budget, the IMF forecast public debt hitting 256.9 percent of GDP this year.
Japanese Prime Minister Fumio Kishida is walking a fine line between seeking longer-term fiscal health while spending enough to both support the economy in the short term, and ensure growth in the long term.
Big-ticket items in the budget include burgeoning social security spending of ￥36.3 trillion, debt servicing of ￥24.3 trillion, ramped-up defense outlays and reserves to deal with COVID-19.
Next year’s budget also includes another ￥5 trillion in reserve funds for responding to the spread of COVID-19.
So far Japan has managed to avoid major outbreaks of the Omicron variant of SARS-CoV-2 that is rampaging through the US and UK, but that situation could swiftly change.
After finding the first case of community spread of the Omicron variant this week in Osaka Prefecture, another case was found on Thursday in neighboring Kyoto Prefecture.
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