Research Briefing | Jun 10, 2022

Japan’s PM Kishida shies away from fiscal consolidation in new Basic policy

Japan: Kishida shies away from fiscal consolidation in new Basic policyAfter 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.

Back to Resource Hub

Related posts


Look for an L-shaped property recovery with a long tail in China

Policies aimed at managing China's housing slump have led investors to query the shape and depth of a market correction. We think a meltdown is unlikely and that China's housing market will instead undergo a protracted L-shaped downturn.

Find Out More


Easing supply hurdles won’t offset falling industrial demand in APAC

We earlier argued that Asia’s manufacturing activity has been impacted more by demand than by supply-side pressures, due to strict Covid-related policies. Supply constraints in Asia have been less acute than in the US and Europe, and we had forecast resilient industrial growth in 2022 and 2023 as regional demand recovers. But the global growth outlook has deteriorated since then. Following our recent downgrade to 2023 GDP growth forecasts for most Asian economies, we now expect weaker industrial growth in Asia. That said, there will be divergences across the region.

Find Out More


Why we forecast Japan’s resilient growth in 2023

We expect the Japanese economy to grow at 0.9% y/y in 2023, after 1.6% growth in 2022. Four reasons why we project the relatively resilient growth compared to other advanced economies: pent-up demand, the key auto industry recovery, supportive policy, and a strong base effect.

Find Out More