Japan’s fiscal deficits will continue indefinitely

Subject

Japan's fiscal deficits.

Significance

The Cabinet has approved a 13.2-trillion-yen (120-billion-dollar) fiscal stimulus package to counter the negative effects of a consumption tax increase last October and a projected slowdown following the end of the Tokyo Olympics in July-August.

Impacts

• The finance ministry’s plan to achieve primary fiscal balance by 2025 is unrealistic, despite the raised consumption tax.
• There is a risk that government investment will go to pork-barrel projects of dubious economic value.
• Fiscal policy could raise future returns on investment by spending on basic research, doctoral education and productive infrastructure.