Japan anticipates achieving its primary balance goal in the fiscal year starting April 2025, marking a significant milestone for fiscal health after more than a decade of delays. The primary balance, which excludes net interest payments on public debt, is projected to be around ¥800 billion ($5.2 billion), or about 0.1% of GDP in fiscal year 2025, according to a mid- to long-term outlook report released by the Cabinet Office on Monday. This forecast represents an improvement from the ¥1.1 trillion deficit, or -0.4% of GDP, predicted in January and would be the first surplus since the target was set in 2002.
The government initially aimed to meet this goal in fiscal year 2011 but postponed it repeatedly. The improved outlook will alleviate some pressure on the government, which is grappling with rising social security and defense costs. Prime Minister Fumio Kishida reaffirmed his commitment to achieving a primary balance surplus in the next fiscal year in his recent economic and fiscal policy plan. This projection also provides some reassurance to market observers concerned about Japan’s fiscal health and bond yields, especially as the Bank of Japan is expected to raise interest rates further this year.
The anticipated surplus is partly due to higher tax revenues, projected to increase total revenues by about ¥1.6 trillion. Last fiscal year, Japan’s tax income reached a record ¥72.1 trillion, bolstered by a weak yen and rising prices that enhanced business performance. On the expenditure side, price increases are expected to add ¥400 billion to spending, but this is expected to be offset by a ¥700 billion reduction through expenditure reforms, according to the report.
Despite these positive projections, Japan’s finances remain under significant strain due to its substantial debt. Japan’s general government debt is equivalent to 255% of its economy, the highest among developed nations, according to the International Monetary Fund. The primary balance forecast does not account for the debt and its servicing costs.
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