Japan Seen Logging 800-B.-Yen Primary Balance Deficit in FY 2026

Tokyo, Jan. 22 (Jiji Press)–Japan is expected to post a primary budget deficit of about 800 billion yen in fiscal 2026, a government estimate showed Thursday. The estimate for the primary budget balance at the central and local governments in the year that starts in April was presented to the day’s meeting of the Council on Economic and Fiscal Policy, chaired by Prime Minister Sanae Takaichi. The forecast worsened from a surplus of about 3.6 trillion yen presented in August 2025 because the implementation of the central government’s fiscal 2025 supplementary budget, the largest since the end of the COVID-19 pandemic, is slated to be delayed into the coming fiscal year. As a result, the country will aim to reach its target of achieving a primary budget surplus in fiscal 2027, later than the current goal of fiscal 2025-2026. Takaichi, who advocates a “responsible and proactive” fiscal policy, said at the meeting that her administration will check the primary balance over several fiscal years instead of doing so on a single-year basis. She instructed council members to review the primary balance target ahead of the compilation of the government’s new basic economic and fiscal policy guidelines around the middle of this year. The primary budget balance is an indicator of a nation’s fiscal health. A primary surplus means a situation in which expenditures on policy measures, such as social security and public works projects, are covered with tax and other revenues without relying on revenue from debt issuance. Although tax revenues are expected to increase in fiscal 2026 on the back of strong corporate earnings, the delay in the implementation of the fiscal 2025 supplementary budget with more than 18 trillion yen in spending is forecast to weigh on the fiscal 2026 primary balance by 5.2 trillion yen. Under a scenario in which Japan’s nominal gross domestic product grows around 3 pct, the country is expected to post a primary budget surplus of roughly 4.4 trillion yen in fiscal 2027. The Takaichi administration aims to lower the ratio of outstanding debt at the central and local governments to GDP from the current level of more than 190 pct by making nominal GDP growth consistently top long-term interest rates. Under the 3 pct GDP growth scenario, the debt-to-GDP ratio is expected to fall to 162.6 pct in fiscal 2035. However, if GDP growth remains around 1 pct, the ratio is projected to rise after slipping to 184.1 pct in fiscal 2030. The latest estimates do not take account of expected decreases in tax revenue from consumption tax cuts proposed by ruling and opposition parties for the Feb. 8 election for the House of Representatives, the all-important lower chamber of Japan’s parliament. The projections are based on the assumption that the yield on the most recent issue of 10-year Japanese government bonds, regarded as the country’s benchmark long-term interest rate, would be at 2.1 pct in fiscal 2026. But the yield has risen to as high as 2.38 pct in interdealer bond trading recently, due to concerns about the government’s fiscal health amid Takaichi’s aggressing spending policy. Higher interest payment costs on JGBs may hinder efforts to lower the debt-to-GDP ratio. END [Copyright The Jiji Press, Ltd.]