Japan fiscal rigidity intensifies with fast-aging and soaring debt
The effective size of the FY2024 initial budget continues to expand, led by structural pressures from fast-aging, rising debt servicing costs, and the increasing needs for defence spending. Fiscal rigidity has intensified as the government has no intention to hurry fiscal consolidation.
What you will learn:
- Social security expenses, which account for one-third of the budget, rose by 1 trillion yen from FY2023. Higher interest rates increased debt servicing costs by 2 trillion yen, reaching almost one-fourth of the budget. National defence spending rose by 1 trillion yen, following the government’s plan to double its size in five years to 2% of the GDP by 2027.
- Tax revenues are expected to remain the same as in FY2023, as political decision to cut income tax temporarily to support households will offset the additional revenue induced by an economic recovery.
- Although the FY2024 budget foresees a visible improvement in the primary balance, we are doubtful of its feasibility, given that it has become customary to have a sizeable supplementary budget at year-end in recent years regardless of economic conditions.
- The effective primary fiscal deficit during the pandemic was much smaller than budget figures and returned to balance in a short period because of the unspent amount and a rising share that is transferred to strategic funds which are not spent immediately
Tags:
Related Posts
Post
Japan’s tariff turbulence to flatten near-term growth
We've cut our GDP growth forecasts for Japan by 0.2ppts to 0.8% in 2025 and by 0.4ppts to 0.2% in 2026, reflecting higher US tariffs and heightened global trade policy uncertainty. We now forecast that Japan's economy will barely grow over 2025-2026 on a sequential basis.
Find Out More
Post
25% auto tariffs especially painful in Japan and South Korea
US tariffs of 25% on all automobile and auto parts will weigh heavily on the Japanese and South Korean automotive sectors. A GTAP analysis suggests Japanese and South Korean automotive production will each shrink by approximately 7%. The impact is larger than suggested by bilateral trade data, because vehicles assembled in other countries before being shipped to the US will also be affected, dampening domestic auto parts production.
Find Out More
Post
‘Liberation Day’ 24% tariff will limit Japan’s growth
The 'Liberation Day' tariffs, together with separately announced higher tariffs on auto imports to the US, will lead us to cut our growth forecast for Japan. The direct impact of the tariffs will end the modest growth we projected in March, and we now think the economy will barely grow in 2025-2026. This initial estimate does not consider the indirect impact from high trade policy uncertainty and retaliation from other economies.
Find Out More