The Fiscal Policy Advisory Committee said on Tuesday that Japan should move towards fiscal consolidation as a possible rise in interest rates could mean higher payments for the debt-stricken country and limit its room for future emergency spending. He expressed the view that efforts made should not be set back.
In a series of recommendations submitted to the government ahead of developing its fiscal policy blueprint this summer, the commission emphasized the need to reduce the size of the fiscal deficit and the national debt associated with the economy.
Japan has set a goal of achieving a surplus in its primary fiscal balance by fiscal 2025, which is calculated by subtracting expenditures excluding debt service costs from tax revenues, but many believe that this goal is unachievable.
A committee made up mostly of academics is calling on governments to include debt-related payments when assessing the extent to which their fiscal health, currently the worst among developed countries, has improved.
The proposal was announced after the Bank of Japan raised interest rates for the first time in 17 years in March. Japan's long-term government bond yields are on an upward trend, with the benchmark 10-year bond yield approaching 1.0%.
A file photo taken from a Kyodo News helicopter in May 2016 shows the Bank of Japan's headquarters in Tokyo. (Joint)
The advisory committee pointed out that “Japan, which has a huge debt balance, should be more acutely aware than other countries of the risk that debt repayment costs will increase due to rising interest rates, and should conduct fiscal management with moderation.''
“The economy is starting to regain traction, prices and wages are rising, and interest rates are entering an upward trend. Now is the time to normalize spending and build a sustainable fiscal structure as soon as possible.” .
Japan's debt is more than twice the size of its economy, but the Bank of Japan holds about half of the outstanding government bonds it purchased through years of monetary easing.
According to the committee, Japan's accumulated debt is evidence that it is slow to move out of emergency mode, where large-scale fiscal stimulus has been implemented for years in response to economic crises and disasters, and that Japan's The country's aging population is exacerbating the country's predicament.
The committee members stated, “Through restrained fiscal management during normal times, we will be able to use fiscal spending without hesitation in times of emergency.''
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