Revision of Fiscal Targets: Govt Must Avoid Undermining Market Confidence

Editorial

16:13 JST, March 1, 2026

The importance of achieving both economic growth and fiscal soundness has become even greater. The administration of Prime Minister Sanae Takaichi must ensure that its new fiscal targets are credible to the markets.

Takaichi intends to revise the current fiscal targets as she moves forward with “responsible and proactive public finances.”

Successive administrations since 2002 have set a goal of achieving a surplus in the primary balance of national and local government finances. The primary balance is an indicator showing how much of the expenditures for policy purposes are covered by tax revenue and other sources, without relying on borrowing.

Takaichi has decided to abandon the previous single-year surplus targets and instead adopt a system that assesses the balance over multiple years.

The government will shift its focus toward steadily reducing the ratio of government debt to GDP. It aims to clarify the details of the targets by this summer.

The debt-to-GDP ratio can be reduced by increasing GDP, the denominator, even without necessarily achieving a primary budget surplus. This likely reflects a policy approach that prioritizes economic growth while aiming for fiscal consolidation over the medium term.

However, the national debt has already surpassed ¥1,300 trillion. The debt balance stands at twice the level of the GDP, an exceptionally bad state compared to other major economies. If fiscal discipline is relaxed to rely on growth alone, a loss of market confidence will be unavoidable.

The goal of achieving a primary balance surplus has been emphasized in each fiscal year’s budget to prevent the unchecked expansion of expenditures. Changing the target to a multiyear basis does not mean efforts to achieve a surplus can be reduced.

The Takaichi administration aims for a “strong economy” in which economic growth leads to rising prices, wages and interest rates.

In a “world with interest rates,” interest payments on government bonds will also increase, making it crucial to curb new bond issuance. This is because bonds issued during the zero-interest-rate era will gradually be replaced by those with higher interest rates.

According to Finance Ministry estimates, if long-term interest rates rise to 3.6% in fiscal 2029, interest payments will double from fiscal 2025 to ¥21.6 trillion, making it impossible to avoid pressure on fiscal management.

If the new targets are perceived by the market as a retreat from fiscal discipline, long-term interest rates will rise, making fiscal consolidation even more difficult. This could also lead to excessive yen depreciation, causing high prices to burden the public. There are also concerns about a decline in national strength.

To gain market confidence, it is necessary to clearly demonstrate a path to reducing the debt-to-GDP ratio. Discussions on specific levels and time frames should be deepened.

(From The Yomiuri Shimbun, March 1, 2026)