Tokyo, Sept. 18 (Jiji Press)–Balancing efforts to secure economic growth and promote fiscal discipline will be a major issue for Japanese Prime Minister Sanae Takaichi’s cabinet, which was reshuffled Wednesday. The Takaichi government is set to fully start work on the compilation of its fiscal 2027 budget. While budget requests from government agencies and ministries have reached a record high above 143 trillion yen as the administration aims to make the country’s economy resilient, the yen and Japanese government bonds are coming under selling pressure amid concerns among investors about further deterioration in public finances. Close attention is being paid to whether the government can secure financial resources, without issuing deficit-covering bonds, for a planned two-year consumption tax rate cut to 1 pct from the current 8 pct for food from April 2027, a measure to help ease the impact of inflation. A total of about 5 trillion yen is forecast to be needed a year for the tax cut and an envisioned benefit program. The government plans to cover the costs through a revision of spending and revenue, but little progress has been made in the work on reductions in subsidies and special tax breaks, seen as a major financial resource. Meanwhile, increases in spending appear inevitable. Targeting more than 370 trillion yen in public- and private-sector investments by fiscal 2040, the Takaichi government plans to set up a special spending quota to make Japan strong and prosperous under the fiscal 2027 budget with an aim to back up investments on measures to enhance economic growth and crisis management systems. For the special quota, the government allowed ministries and agencies to request necessary funds without setting a ceiling. In addition, funds for measures that are normally secured under supplementary budgets would be included in the full annual budget. As a result, total fund requests from ministries and agencies under the initial budget for the fiscal year starting in April 2027 have exceeded 143 trillion yen. Planned defense spending may be revised up by trillions of yen as the government plans to update its three national security-related documents. In addition, large spending is planned for the development of semiconductors and artificial intelligence. Japan’s benchmark long-term interest rate, measured by the yield on the most recent issue of 10-year JGBs, topped 3 pct for the first time in about 30 years earlier this month, due partly to concerns over global inflation amid soaring crude oil prices reflecting tensions in the Middle East. A possible sharp increase in JGB issuance would cause the long-term rate to rise further, resulting in growth in coupon payments and subsequently putting additional pressure on public finances. Addressing the yen’s weakness, which leads to higher prices, and stabilizing crude oil imports are also urgent tasks for the Takaichi administration. U.S. Treasury Secretary Scott Bessent, concerned about a possible turmoil in U.S. financial markets, has repeatedly urged the Bank of Japan to raise interest rates to stem the yen’s further weakening. Efforts to import crude oil from regions other than the Middle East amid the blockade of the Strait of Hormuz also face challenges. Raising wages further and improving productivity are also key issues facing the Takaichi government. The administration is considering reviewing restrictions on working hours, including in terms of discretionary work systems. But the labor and management sides are sharply divided over the matter. END [Copyright The Jiji Press, Ltd.]
