(Bloomberg) — Japan’s new prime minister should set a new target for fiscal consolidation once the country balances its budget, government adviser Takero Doi said.
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As an option, the government could consider setting a budget surplus-to-gross domestic product target to ensure the country stays in the black, said Doi, an economics professor at Keio University and a member of a Finance Ministry advisory panel. Such a target would help bring down Japan’s government debt-to-GDP ratio, he said in an interview last week.
According to the Cabinet, the primary balance, the difference between government revenues and expenditure excluding net interest payments on the debt, is expected to be positive in the year starting from budget year 2025, after several delays.
“Going forward, the focus should be on what happens after the primary equilibrium goal is achieved,” Doi said.
Japan’s ruling Liberal Democratic Party will elect a new leader on September 27. The winner of a crowded race with about 10 potential candidates will almost certainly become the new prime minister, given the party’s dominant position in parliament.
The new leader cannot afford to remain indifferent to a debt burden that is more than twice Japan’s GDP and the highest of any major economy, Doi said.
“If the prime minister spends a lot of money now and creates a huge amount of debt, that will limit the policy options for another leader in five or 10 years,” Doi said.
Because government debt payments are expected to increase and the central bank will gradually raise interest rates, too much reliance on debt could limit the degree of policy freedom in the future.
According to the Ministry of Finance, interest expenses on government bonds in fiscal 2027 are expected to reach ¥15.3 trillion ($105 billion), an increase of about 60% from the current fiscal year.
–With assistance from Yoshiaki Nohara.
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