Japan¡¯s government loosened the wording around its balanced budget commitment in changes that suggest it is seeking more fiscal flexibility as it tries to shore up the economy¡¯s recovery from the pandemic.
In a draft of its latest annual fiscal policy plan released Tuesday, the government said it¡¯ll continue with its existing goal to seek fiscal health, but removed a direct reference to balancing the nation¡¯s books by the end of fiscal 2025.
¡°The current target year should not distort macroeconomic policy options for responding to present circumstances,¡± the draft said.
Japan¡¯s target of balancing its budget excluding debt payments within that time frame had long seemed unlikely, even by the government¡¯s own growth projections. But some economists have pointed out that better-than-expected tax revenues are bringing the prospect of a surplus within reach in coming years.
Finance Minister Shunichi Suzuki said earlier Tuesday that Japan was still aiming to get out of the red by fiscal year 2025, a comment that suggests views within the government may not be entirely aligned.
The latest wording and dropping of the direct time reference hints at Prime Minister Fumio Kishida¡¯s willingness to spend more to keep the recovery on track as a key summer election approaches and as he eyes changes to the economy over the longer run.
The proposals put forward by the government¡¯s New Capitalism panel Tuesday already call for more investment into a variety of areas, and the issuance of a new class of bonds to fund green technology as Japan tries to meet a future goal of net-zero emissions.
That comes on top of ?6.2 trillion ($48.4 billion) of measures Kishida announced in April to alleviate the impact from rising energy costs and other forms of inflation. Parliament passed an extra budget to help fund the set of policies Tuesday.
The shift in attitude suggests the world¡¯s most indebted advanced economy is pushing its fiscal balancing objectives further into the future. For now, the change is unlikely to mean a major hit to Japan¡¯s debt picture given it already has a history of continuously delaying its fiscal balance targets.
In the past, major credit ratings firms have said they¡¯re more interested in whether Japan returns to its pre-virus growth levels than if it ditches its target of balancing the budget by fiscal 2025.
Still, hawks in the government and particularly the Finance Ministry are likely to keep pushing for a return to fiscal discipline.
¡°I¡¯m aware that there are differing views within the ruling party,¡± Suzuki told reporters. ¡°But as it stands we¡¯re not hearing requests for changing the 2025 year target, and the goal remains unchanged.¡±
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