2022 – Japanese government cancels schedule for Reuters budget target

© Reuters. FILE PHOTO: Businessmen wearing protective masks walk on a pedestrian bridge amid the spread of the coronavirus disease (COVID-19) in a business district in Tokyo, Japan, June 24, 2020. REUTERS/Issa Kato/File Photo

By Yoshifumi Takemoto and Tetsushi Kajimoto

TOKYO (Reuters) – The Japanese government has not mentioned a time frame for balancing the initial budget in its draft long-term economic roadmap by mid-year, two government sources told Reuters.

The government previously committed to achieving a primary budget surplus, which excludes new bond sales and debt servicing costs, by the end of fiscal year 2025, which was seen as an elusive goal given the state of Japan’s public finances.

The budget balance goal has been a key criterion for the government to finance policy spending without relying on debt – as part of an effort to rein in the largest public debt in the industrialized world, which is twice the size of the Japanese economy.

The absence of the target year from the mid-year policy roadmap may raise questions about Japan’s determination to fix its faltering public finances.

“This means that the government may signal that it will prioritize growth and growth-oriented investment,” said Daigo Aoki, chief economist for Japan at UBS Sumi Trust Wealth Management. “This would boost household spending in the name of investment growth in the short term.”

Jiji news agency reported that the draft said the current target year could “distort” macroeconomic policy options depending on the situation at the time, omitting words such as “fiscal year 2025” included in the previous roadmap.

Government sources said that the draft takes into account the financial implications within the ruling Liberal Democratic Party led by Prime Minister Fumio Kishida.

Kishida has been under pressure from those financial doves due to the COVID-19 pandemic and the rising cost of living.

They remain at odds with fiscal hawks within the Liberal Democratic Party.

The draft also stated that the government would not abandon the science of tax reform and would deal with the previous fiscal target, apparently in deference to financial hawks within the Liberal Democratic Party, Jiji news agency reported.