Japan to stick to FY2025 goal for balancing budget in review


© Reuters. FILE PHOTO: Japan’s highest peak Mt Fuji is seen at dusk over the Shinjuki business district skyscraper in Tokyo November 4, 2001.

By Leika Kihara and Tetsushi Kajimoto

TOKYO (Reuters) -Japan will maintain its fiscal 2025 target for balancing its budget when it reviews the time frame in coming weeks, the Mainichi Shimbun reported on Thursday, in an early victory for proponents of bringing the country’s fiscal house in order.

Whether the government would keep or ditch the goal in favour of more stimulus spending has been in focus as Prime Minister Fumio Kishida faced pressure from both sides within his ruling Liberal Democratic Party (LDP).

As part of efforts to rein in its huge public debt, Japan has for years set a time frame for bringing the primary budget, excluding new bond sales and debt servicing costs, back to a surplus in its annual fiscal blueprint.

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.

The government will come up with its own estimates that it can be met in fiscal 2026, assuming solid economic growth and high tax revenue, the business daily reported separately.

“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 (OTC:) 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 putting 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.

Government officials declined to comment on the media reports.

A vast majority of Japanese firms want fiscal support to keep flowing at least through this year, a Reuters poll showed, even as major economies from Europe to the United States dial back crisis-mode economic stimulus programmes.

Japan is saddled with public debt that is more than double the size of its $5 trillion economy, the world’s third largest, making it the industrial world’s heaviest debt burden as a result of decades of massive pump-prime spending.

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