Fiscal Consolidation Targets: Present Path That Can Strike Balance with Economic Growth

Editoial

15:59 JST, November 17, 2025

The administration of Prime Minister Sanae Takaichi has started discussions on economic measures with a government panel that includes new members who advocate proactive fiscal policies. It must advance measures that will strike a balance between fiscal consolidation and economic growth.

After the Takaichi Cabinet was launched, the Council on Economic and Fiscal Policy, which serves as the command center for economic measures, held its first meeting. Waseda University Prof. Masazumi Wakatabe and economist Toshihiro Nagahama — newly appointed council members from the private sector — are likely to have significant impacts on future discussions.

Both are known as reflationists who advocate for aggressive fiscal policies and focus on monetary easing. Takaichi has also added two reflationist economists to the Council for Japan’s Growth Strategy.

The focus of discussions will likely be on new fiscal consolidation targets, which the prime minister has announced.

Reflationists generally place priority on economic growth, emphasizing that growth of nominal gross domestic product will eventually reduce the government’s debt-to-GDP ratio, leading to fiscal consolidation as a result.

At the council meeting, Wakatabe called for reviewing the goal of achieving a primary balance surplus, saying that this goal is “a product of the deflation era and has already ended its historical role.”

However, national debt, including government bonds, has reached about ¥1,300 trillion. The primary balance is an indicator of how much expenditure for policy measures is covered by tax revenue and other funds without relying on debt. If even a surplus in the primary balance cannot be achieved, it will be impossible to reduce government debt steadily.

Since 2002, successive administrations have set the goal of achieving a primary balance surplus, but this has never been achieved, meaning it has continued being carried over. The current goal aims to achieve a surplus as early as sometime in fiscal 2025 and fiscal 2026.

Takaichi has clearly stated in the Diet that the goal of a primary balance surplus for a single fiscal year would be “withdrawn” and expressed an intention to review the approach, and instead consider the primary balance over multiple years. Takaichi said she would instruct government members to consider the specifics of this matter in January next year.

Efforts should be made toward a balance between economic growth and fiscal reconstruction. While some may regard a primary balance surplus goal as a hindrance, national strength is unlikely to be enhanced through increased spending alone.

With the advent of an “economy with positive interest rates,” further vigilance over financial market risks is needed.

The yen has been depreciating further, driven by market caution over the Takaichi administration’s strongly reflationary-oriented fiscal policies.

If long-term interest rates rise, interest payments on government bonds could surge rapidly. This would reduce the government’s capacity to support corporate investments, such as “strategic investments that enhance resilience against potential crises” that the prime minister has pushed for.

If the yen’s excessive depreciation is left as it is, rising prices will not abate, leaving the situation far from enacting “responsible and proactive public finances.”

(From The Yomiuri Shimbun, Nov. 17, 2025)