Japan Predicted to Incur Budget Deficit of 3.2 Trillion Yen in Fiscal Year 2025
Japan has revised its primary budget surplus target from fiscal 2025 to fiscal 2026, primarily due to a downward revision in economic growth projections and adverse impacts from global trade conditions. The Cabinet Office lowered Japan’s GDP growth forecast for fiscal 2025 to 0.7% from 1.2%, citing slowing exports and reduced capital spending due to tariff barriers and weaker demand abroad.
The meeting to discuss this revision was chaired by Prime Minister Shigeru Ishiba, as stated earlier. The meeting, which took place in June, also approved the latest basic economic and fiscal policy guidelines.
The primary budget balance, an indicator of government spending on policies like social security and public works, covered by tax and other revenues without relying on debt, is expected to show a deficit of 3.2 trillion yen in fiscal 2025. This is a significant improvement from the previous estimate of 4.5 trillion yen. The improvement is due to higher tax revenues.
The primary budget balance refers to the balance of the central and local governments. The delay in achieving the primary budget surplus target was not mentioned in the earlier paragraphs, but it was effectively delayed to fiscal 2026 in the latest basic economic and fiscal policy guidelines.
Japan's exports to the U.S., particularly automobiles, have suffered significant declines due to 15% to 25% tariffs imposed on Japanese products. This trade disruption has contributed to slower growth and subdued fiscal revenues in the short term. Consequently, the government adjusted its medium-term economic and fiscal projections, expecting the primary surplus to increase more noticeably only by FY2026 rather than FY2025.
Japan is expected to miss its target of achieving a primary budget surplus by fiscal 2025, but the revised target for fiscal 2026 offers a glimmer of hope for a more balanced budget in the near future.
The revised basic economic and fiscal policy guidelines approved in the meeting chaired by Prime Minister Shigeru Ishiba in June indicate a delayed primary budget surplus target, now set for fiscal 2026. This delay is attributed to factors such as global trade conditions, slowing exports, and reduced capital spending, as disclosed in the Cabinet Office's GDP growth forecast. The adjustment in medium-term economic and fiscal projections also reflects the impact of tariffs on Japanese products, particularly in the auto-export sector, on Japan's finance and overall business performance, which can be categorized as part of the broader general-news landscape.
