Japan Eases Fiscal Tone as PM Takaichi Pushes for Growth

Post by : Saif Nasser

Japan’s economic debate took a new turn this week as a major government advisory panel softened its stance on strict budget discipline. The change reflects the growing influence of Prime Minister Sanae Takaichi, who has been calling for stronger spending to lift the country out of years of weak growth and low inflation.

The fiscal system council, which advises the finance minister, released its annual budget recommendations on Tuesday. Unlike last year, when the panel demanded a quick return to a budget surplus and a rollback of pandemic-era spending, this year’s message is far more flexible. The council said Japan should review its primary budget balance every year, instead of insisting on an urgent shift to surplus.

For a country with debt more than twice the size of its economy, this softer tone marks a clear change from earlier warnings. Japan has long been seen as needing tough reforms to repair its public finances, especially as the Bank of Japan begins to reduce the ultra-easy monetary policies that kept borrowing costs extremely low for more than a decade. With interest rates creeping up, the cost of holding such large debt is becoming more challenging.

But Prime Minister Takaichi believes that economic strength should come before strict fiscal targets. She argues that Japan cannot fix its finances without first boosting household income, business profits and overall economic activity. Her approach is built on the idea that growth will eventually support healthier government revenues.

Her government has already delivered one major step in this direction. Last week, it approved a supplementary budget of 18.3 trillion yen, equal to about $117 billion, to support a large stimulus package. Much of this money will be raised through new borrowing, adding to Japan’s already huge debt load. The plan includes support for workers, companies and consumers, all aimed at sparking stronger spending and confidence in the economy.

However, the rising debt level has not gone unnoticed by markets. Yields on super-long Japanese government bonds have jumped to record highs this year, showing investor concern about the country’s financial path. Higher long-term yields mean it may become more expensive for the government to borrow in the future.

The primary budget balance—an important measure that excludes debt-related costs—has been Japan’s main fiscal target for years. Policymakers have been working toward achieving a surplus, which would show that the government can fund its policies without relying on new borrowing. Earlier official forecasts suggested this goal could be reached sometime between fiscal 2025 and 2026.

But Prime Minister Takaichi has signaled she wants to move away from using the annual primary balance as a strict measure of discipline. Instead, she prefers a longer-term goal that gives the government more space to spend when needed. This approach mirrors her broader strategy of reflation, where steady economic growth and rising incomes are seen as the foundation for Japan’s future stability.

The shift highlights the delicate balance Japan must manage: supporting its economy while keeping debt risks under control. The softer stance from the advisory panel suggests that, at least for now, the government is willing to prioritise growth over rapid fiscal tightening. The coming years will show whether this strategy can deliver both a stronger economy and more sustainable public finances.

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