Against expectations, Japan's budget expected to remain in Red in FY25

Japan's primary budget balance is expected to remain in the red in the fiscal year 2025/26 when policymakers had hoped to achieve a surplus, the Cabinet Office estimates showed, highlighting the stiff costs of servicing a record public debt.
 

The primary balance - a key measure of how much Japan's national and local governments finance policy measures without relying on debt - was estimated at a deficit of 1.1 trillion yen ($7.44 billion), versus the previous forecast of 1.3 trillion yen shortfall seen in July.
 

Saddled with the industrial world's worst public debt at more than double the size of its economy, Japan has been focussed on improving its primary budget but debt servicing costs and COVID-related expenses have hampered its efforts.
 

The government has targeted bringing its primary budget balance, which excludes new bond sales and debt servicing costs, into the black by fiscal year ending March 2026.
 

Japan's primary budget has largely been in deficit in the postwar era with the exception of the asset bubble period between 1986 and 1991.
 

Having pushed back the goal post several times, the Cabinet Office forecasts show Japan is yet again unlikely to balance the primary budget by the target year, a view shared widely with private-sector economists.
 

The latest estimate reflected higher than expected nominal GDP growth as well as streamlining spending, both of which contributed to improving the budget balance slightly, while higher inflation and stimulus spending rolled out late last year boosted expenditure.
 

The estimates assumed Japan's economy achieves real GDP growth of 1.3 per cent - a level seen during fiscal years 1980 through to 1990 on average, with consumer prices at 2.0 per cent and the nominal long-term interest rates at 0.9 per cent．Japan's growth has hovered below 1 per cent in the past decade.
 

On the flip side, assuming the current growth rate and inflation trajectory, the primary balance could deteriorate into a 2.6 trillion yen deficit, the Cabinet Office estimates showed.