Japan’s PM Kishida shies away from fiscal consolidation in new Basic policy
After tough negotiations within Japan’s ruling party, on June 7 the cabinet finally approved the Basic Policy on Economic and Fiscal Management and Reform for 2022 (Basic policy 2022), an annual document describing the direction and priorities for economic policy. The key takeaway is that Prime Minister Fumio Kishida is unlikely to tackle fiscal consolidation in the coming years. Instead, Kishida has shifted emphasis to increase spending on defence and various investment plans to promote growth, to be funded by debt. This will leave the BoJ with little choice but to maintain low interest rates to support fiscal funding.
What you will learn:
- Kishida has emphasised his pro-growth stance by calling for massive investment in human capital and new technology to promote digital and green transformation. But the policy does not outline a strategy to attract private investment and the scale of public investment as a catalyst is limited.
- After tough negotiations with powerful groups within the ruling party who want a more expansionary fiscal policy, Kishida has compromised his commitment to fiscal discipline and dropped the target year for restoring a surplus in the primary fiscal balance.
- Rising fiscal funding through debt will leave little room to the Bank of Japan to adjust its low interest rate policy even after a leadership change in April 2023.
Tags:
Related posts
Post
Adjusting our assumptions toward stronger US tariffs
In the second release of the November baseline, we updated our tariff assumptions, but the impact on GDP, inflation, and interest rates was small.
Find Out More
Post
Growth forecasts trimmed on review of Trump 2.0 impact
We have revised down our global economic forecasts slightly from our snap post-election assessment. The broad picture is little changed, though: a Trump presidency should have a mild impact on topline macro variables, while the effects on individual sectors and financial markets will likely be larger.
Find Out More
Post
EV shift could pose a big challenge to Japanese economy
Amid the fast-progressing electric vehicle (EV) shift, maintaining high competitiveness in auto-related sectors and ensuring a smooth labour transition across industries are crucial for the growth of the Japanese economy. As auto production shifts towards EVs, which require different inputs from traditional internal combustion engine cars, parts suppliers will need to adapt to avoid losing market share to foreign players. Change in automotive supply chains would also require workers to move across different industries, a task particularly challenging for Japan.
Find Out More