Japan Targeting Budget Surplus in Upcoming Fiscal

Japan plans to maintain its goal of achieving a primary budget surplus in the next fiscal year, according to a draft of annual policy guidelines for budget planning. The government also aims to reduce the ratio of debt to gross domestic product (GDP), as highlighted in the draft.

A government projection from January suggested that a primary budget surplus for Japan, the world's fourth-largest economy, could be achievable by fiscal 2025. This projection assumes continued strong economic growth and ongoing efforts to cut spending. The primary budget balance, which excludes new bond sales and debt servicing costs, has been in deficit for most of the postwar era, with the exception of the asset bubble period between 1986 and 1991.

Japan currently holds the highest public debt among industrialized nations, exceeding twice the size of its economy. The goal of a primary budget surplus was initially set in the early 2000s but has been postponed multiple times.

The draft policy highlights that Japan now faces unprecedented opportunities to fully exit deflation and achieve growth. "We need to move forward to attain both an economic revival and fiscal health," it states. However, it also emphasizes that the primary budget surplus goal should not limit the government's ability to employ essential policy options in varying economic conditions.

Additionally, the draft stresses the importance of the government working closely with the central bank to guide policy flexibly, aiming to achieve sustainable economic growth driven by private sector demand. "Monetary policy has entered a new stage," it notes, referring to the Bank of Japan ending eight years of negative interest rates in March.

The draft policy guidelines will be presented to ruling party lawmakers for deliberation before being finalized at a Cabinet meeting on June 21.