Japan's Big Spenders Have the Upper Hand as Budget Debate Looms

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(Bloomberg) -- Japanese lawmakers have begun debating the budget, with advocates of big spending holding the upper hand over fiscal conservatives even as the nation’s debt mounts.

The country is enjoying its longest stretch of economic expansion since at least the mid-1990s and keeping the purse strings loose may help Japan outgrow its debt problem. Critics argue that the nation needs to get itself on a firmer fiscal footing now and cite the dangers of Japan’s declining and aging population.

Below are the key indicators of fiscal health that form the backdrop for debate of the record 97.7 trillion yen ($890 billion) initial budget for the 12 months starting April 1.

Japan has the developed world’s heaviest debt burden

The economy is growing faster than Japan’s debt, but there’s no clear path to how or when the government might actually start to pay down its borrowings.

Government spending still outpaces tax revenue

A 2019 sales-tax hike won’t close the gap, and hopes of a primary balance surplus, which subtracts debt-servicing costs from the budget, are remote.


The nation’s demographic timebomb is ticking, loudly

It’s estimated that about one in three people will be 65 or older by 2040, and the total population is expected to drop by more than 12 percent in that time.

Japanese firms and households hold the debt, not foreigners

The nation is far less exposed than the U.S. to foreign borrowers, which reduces risk and makes dealing with any future crisis more manageable.

Thanks to the BOJ, interest payments are low ... for now

This may change when the Bank of Japan eventually tapers its monetary stimulus program. Any rapid tightening will be a threat to the government if it hasn’t made progress with fiscal consolidation, warns Yuki Masujima, senior economist at Bloomberg Economics.

Notes

Data for Japanese population, U.S. debt, and International Monetary Fund estimates are for calendar years. Other dates are for Japanese fiscal years, which begin in April.
Chart 1: Shows long-term government debt; from Ministry of Finance.
Chart 2: Shows gross government debt, numbers from 2017 onward are estimates, some data unavailable for U.S., Germany; from IMF.
Chart 3: From Japan Cabinet Office.
Chart 4: Data for 2018 is budget plan, and after that is from estimates based on growth of 1.5%; from MOF.
Chart 5: Numbers from 2019 onwards are estimates; from MOF.
Chart 6: From MOF, Statistics Bureau. Bloomberg divided long-term debt by number of Japanese resident in Japan.
Chart 7: From U.S. Treasury, Bank of Japan, Bloomberg calculations. Includes short-term, long-term and local debt.
Chart 8: From BOJ.
Chart 9: From MOF, Bloomberg data.

©2018 Bloomberg L.P.

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