By Tetsushi Kajimoto and Daniel Leussink
TOKYO -Japan dropped a timeframe for balancing its primary budget in a draft mid-year economic policy roadmap on Tuesday, in an apparent move to meet growing calls for stimulus spending to reflate the pandemic-hit economy.
The mid-year draft is Prime Minister Fumio Kishida’s first since taking office in October. Another key council of Kishida’s government separately called for steps to get households to put more money into investments instead of deposits.
Kishida’s government made no explicit mention of the target year for balancing the primary budget in the economic policy roadmap, to be approved by his cabinet next week.
Instead, the draft urged necessary review of the fiscal target in accordance with the situation.
The government previously pledged to achieve a primary budget surplus, which excludes new bond sales and debt servicing costs, by the end of fiscal 2025. The budget balancing goal has served as a key gauge for the government to finance policy expenditures without relying on debt.
The absence of the target year in the policy plan could raise questions about Japan’s resolve to fix its tattered public finances.
“The description about review may pave the way for delaying the target,” said Takahide Kiuchi, a former Bank of Japan board member who now serves as executive economist at Nomura Research Institute.
FISCAL REFORM
The move would go against a global trend of normalising crisis-mode stimulus, including in the Group of Seven (G7) advanced economies, making Japan an outlier and highlighting the challenge to rein in the industrial world’s heaviest debt burden.
“We will not abandon the flag of fiscal reform and tackle the previous fiscal reform target,” the draft said. “However, we need to closely watch economic situations at home and overseas including the impact from infections and price hikes.”
The draft called for a “two-stage approach” to deal with uncertainty over surging oil and other prices, signalling readiness to adopt other economic measures following the first extra budget worth 2.7 trillion yen ($21.1 billion) for this fiscal year, approved by parliament into law on Tuesday.
“We expect the Bank of Japan to realise its 2% price stability target sustainably and stably, depending on the economy, prices and financial situations,” the draft said.
Also on Tuesday, Kishida’s flagship council for shifting to an upgraded version of capitalism and redistributing wealth to households called in a draft of its first action plan to look into overhauling a tax-free stock and fund investment programme.
With the plan, the government hopes to get households to invest a larger share of their roughly 2 quadrillion yen in financial assets instead of holding them in deposits.
Cash and deposits account for more than half of households’ total financial assets, the draft said.
($1 = 127.7400 yen)
(Reporting by Tetsushi Kajimoto and Daniel Leussink; Editing by Jacqueline Wong and David Holmes)
