Japan Expected to Attain Key Fiscal Target for FY 2015

Tokyo, Jan. 20 (Jiji Press)--The Japanese government is likely to achieve its target of halving its primary budget deficit from the fiscal 2010 level by fiscal 2015, estimates by the Cabinet Office showed Monday. Japan's primary deficit for fiscal 2015 is expected to be equivalent to 3.2 pct of nominal gross domestic product, compared with 6.6 pct for fiscal 2010, according to medium-term estimates submitted to a meeting of the Council on Economic and Fiscal Policy. The new fiscal 2015 projection represents a drop of 0.1 percentage point from the previous estimate, released in August last year, supported by an anticipated tax revenue increase. But in the longer run, the government is seen falling short of its target of achieving a primary surplus in fiscal 2020. The latest estimates by the Cabinet Office suggest that Japan will have a deficit equal to 1.9 pct of GDP that year. Noting that the estimates do not take account of measures to cut expenditures in fiscal 2016 and later, Economic and Fiscal Policy Minister Akira Amari told a press conference that the government needs to study what efforts to reduce spending are needed over the five years to fiscal 2020. A primary surplus refers to a situation in which the government can cover its spending, excluding debt-servicing costs, without relying on new debt issuance. The latest projections are based on a relatively optimistic scenario in which Japan raises the consumption tax to 8 pct in April this year and 10 pct in October 2015, with annual real and nominal GDP growth averaging 2.1 pct and 3.4 pct, respectively, over the coming 10 years. In the scenario, the government assumes that total factor productivity, an indicator of productivity through technical innovation, will more than triple from the current level by the early 2020s. Another assumption is that the employment rate for women will increase to 73 pct by 2020, as targeted by the government. Against this background, council members from the private sector said that it will be difficult for the government to realize the scenario without an unprecedented expansion of its growth strategy. The Cabinet Office also released more cautious estimates, based on average GDP growth projections of 1.3 pct in real terms and 2.1 pct in nominal terms. Under this scenario, Japan's primary budget deficit would be equivalent to 3.4 pct of GDP in fiscal 2015 and 3.1 pct in fiscal 2020. END