Japan’s record $1 trillion budget highlights COVID-19 challenge to growth, debt


Japan – Japan’s cabinet approved on Monday a record $1.03 trillion budget draft for the subsequent financial year. The Ministry of Finance said it will start on April 2021 because the coronavirus and stimulus spending puts pressure on already dire public finances.

The 106.6 trillion yen ($1.03 trillion) annual budget also got a boost from record military and welfare outlays. It marked a 45 rise from this year’s initial level, rising for nine years during a row. With new debt making up over a 3rd of revenue.

From Europe to America, policymakers globally have unleashed a torrent of monetary and financial stimulus to forestall a deep and prolonged recession because the pandemic shut international borders and sent many out of labor.

Fiscal Reform

Japan has shelved fiscal reform. As Prime Minister Yoshihide Suga prioritized efforts to contain the pandemic and boost growth, despite debt at over twice the scale of Japan’s $5 trillion economy.

“We have hardly debated about how to balance the coronavirus response with fiscal reform in Japan,” said Izuru Kato, chief economist at Totan Research. “Ultra-low interest rates under the Bank of Japan’s prolonged monetary easing may have caused fiscal discipline to be paralyzed.”

The spending plan, which was in line with a Reuters return last week, must be approved by parliament early next year.

It will be unrolled together with a 3rd extra budget for this financial year as a combined 15-month budget. Which aims for seamless spending to ease the virus pain. Together with backing Suga’s goal of achieving carbon neutrality and digital transformation.

Striking a right balance

“We had to strike a right balance between the wants to stop the spread of infections. Also to revive the economy and achieve fiscal reform,” government minister Taro Aso told reporters after a cupboard meeting.

“That was the foremost difficult task in compiling this budget.”

The government’s fiscal 2021 primary deficit – excluding new bond sales and debt servicing – is seen at 20.4 trillion yen. Which is over double this year’s initial estimates, making the budget-balancing goal further elusive.

Rating agency Fitch in July cut its outlook on Japan’s debt rating to negative from stable. This is a warning of the COVID-19 impact on rising debt.

“The massive stimulus spending unrolled this financial year may raise worry about ‘fiscal cliff’. This could justify necessitate more spending within the coming year,” said Koya Miyamae, senior economist at SMBC Nikko Securities.


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