Prime Minister Sanae Takaichi's administration has started discussions on economic measures with a government panel including new members advocating proactive fiscal policies. It must advance measures balancing fiscal consolidation and economic growth. Reviews of primary balance surplus goals are in focus.
After the launch of the Takaichi Cabinet, the Council on Economic and Fiscal Policy held its first meeting, with Waseda University Prof. Masazumi Wakatabe and economist Toshihiro Nagahama newly appointed as private-sector members. Both are known as reflationists advocating aggressive fiscal policies and monetary easing. Prime Minister Takaichi also added two reflationist economists to the Council for Japan’s Growth Strategy.
The discussions will likely focus on new fiscal consolidation targets announced by the prime minister. Reflationists prioritize economic growth, arguing that nominal GDP expansion will eventually reduce the debt-to-GDP ratio, achieving fiscal consolidation. At the meeting, Wakatabe called for reviewing the primary balance surplus goal, stating it is “a product of the deflation era and has already ended its historical role.”
However, national debt, including government bonds, stands at about ¥1,300 trillion. The primary balance indicates how much policy expenditure is covered by tax revenue without relying on debt; without a surplus, steady debt reduction is impossible. Since 2002, successive administrations have set surplus goals but never achieved them, with the current target for fiscal 2025 or 2026. Takaichi stated in the Diet that the single fiscal year surplus goal would be “withdrawn,” intending to review it for multiple years and instruct specifics in January next year.
Efforts must balance economic growth and fiscal reconstruction. With an “economy with positive interest rates,” vigilance over financial market risks is needed. The yen has depreciated further due to market caution over the Takaichi administration’s strongly reflationary fiscal policies. Rising long-term interest rates could surge bond interest payments, reducing capacity for corporate investments like those enhancing crisis resilience that the prime minister promotes. Excessive yen depreciation would sustain inflation, far from “responsible and proactive public finances.”