Japan is expected to maintain its fiscal 2025 target for balancing its budget when it reviews the timeframe in coming weeks, Japanese media reported on Thursday.
Whether the government would keep or ditch the goal in favour of more stimulus spending has been in focus as Fumio Kishida’s government faced pressure from both sides within the prime minister’s ruling Liberal Democratic Party (LDP).
As part of efforts to rein in its huge public debt, Japan has for years set a timeframe for bringing the primary budget, excluding new bond sales and debt servicing costs, back to a surplus in its annual fiscal blueprint, Mainichi Shimbun reports.
The government has pushed back the goal of achieving a primary balance several times.
Its most recent pledge that it would do so in fiscal 2025 came with a caveat that the target would be reassessed given the economic pain caused by the Covid-19 pandemic.
“It’s true tax revenue is overshooting thanks to a return on massive stimulus spending, but it would be dangerous to assume a rosy scenario that tax revenue would remain high, given uncertainty such as the Omicron outbreak,” Hiroshi Shiraishi, senior economist at BNP Paribas Securities, said.
“Japan must carry the flag of fiscal reform to win market confidence in its debt management, but it would be difficult to achieve the primary balance target given the risk of a fiscal cliff that could be caused by pulling the plug on stimulus.”
The Nikkei reported that the government would bring forward by one year a medium-term forecast of achieving a surplus, to fiscal 2026, in anticipation of higher corporate tax revenues through an economic recovery.
There is uncertainty, however, whether Japan can speed up efforts to keep its fiscal house in order as Kishida faces pressure to maintain or ramp up spending ahead of an upper house election later this year.
- Reuters with additional editing by George Russell
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