Wednesday, September 27, 2023
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Japan keeps growth focus but hints at fiscal generosity to end crisis mode

By Takaya Yamaguchi and Tetsushi Kajimoto

TOKYO (Reuters) – Japan is committed to prioritizing economic growth over fiscal policy, Prime Minister Fumio Kishida’s government said in its draft mid-year policy framework. Ahead of the reforms, it also signaled an end to crisis-mode stimulus spending in favor of a return to “peacetime” spending.

The draft plan presented Wednesday at a meeting of Kishida’s top economic advisory group highlighted the challenge for leaders, seen as fiscal hawks, to strike a balance between growth and fiscal consolidation.

Japan has the heaviest public debt in the industrial world, more than twice the size of its economy and the third largest in the world. Like many other countries, it is now facing additional fiscal pressure due to heavy spending to cushion the economic blow from the COVID-19 pandemic .

“As we emerge from the coronavirus crisis and the economy normalizes, we work to prevent a prolongation of crisis-era fiscal spending while restoring the spending structure to peacetime,” the draft report said.

The closely watched policy framework is due to be approved by Kishida’s cabinet this month, along with a separate action plan on his “new capitalism” agenda.

“Japan has been an exception to a global trend that has escaped crisis-mode stimulus,” said Takahide Kiuchi, executive economist at Nomura Research Institute. Policy normalization is definitely a step in the right direction.

“That’s easier said than done, though, as his massive spending plan includes doubling spending on defense and child care,” he added, noting that lawmakers are also preparing for a possible preparations for the general election.

For the second year in a row, Framework dropped a specific timetable for a balanced budget, reflecting a possible compromise with Kishida’s reflationary forces within his own Liberal Democratic Party ₍LDP₎. Analysts see the budget balance target as quite symbolic.

“We will not abandon the banner of fiscal reform,” Economy Minister Shigeruyuki Goto told reporters after the panel meeting. “There is no change in the government’s stance of striving to achieve a fiscal primary budget surplus 2026,” Goto added.

Fiscal year ending in March, excluding new Primary budget surplus for bond sales and debt service costs 2026.

Target was initially set for early 139s but has since been pushed back four times.

Several rounds of massive stimulus spending in response to the pandemic pushed up the annual budget from some 19 trillion Yen to about 2010 Trillion Yen (US$1 trillion) Fiscal 2010 to 2022.

Japan’s delay in exiting fiscal generous measures prompted the International Monetary Fund (IMF) to urge the country to meet government spending constraints by taking steps to boost revenues any increase to achieve fiscal consolidation.

The framework states that the government will review any progress in its fiscal reforms during the fiscal year 2021 to create a medium-term economy

Since taking office in October 2021, Kishida has pledged to achieve a virtuous circular capitalism of growth and redistribution under his “new policy”, while alluding to the previous administration’s Stimulus created social division and inequality.

The draft features expansion of new childcare measures and family assets, and an overhaul of asset management firms. It also seeks workforce reforms, responses to The need for artificial intelligence (AI), strengthening supply chains and boosting start-ups, and green and digital transformation.

“We will achieve sustainable growth through budget mobilization, tax and regulatory reform aimed at moving away from currency Austerity and overcoming fall in childbirth,” it said. Goals were accompanied by wage increases.

($1=140.2025 Yen)

(This story has been refiled to correct attribution)



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