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Japan needs ‘more credible’ budget balancing target – Moody’s

Randy Mancini 3 Feb 9
FILE PHOTO: A security guard walks past in front of the Bank of Japan headquarters in Tokyo
FILE PHOTO: A security guard walks past in front of the Bank of Japan headquarters in Tokyo, Japan January 23, 2019. REUTERS/Issei Kato/File Photo

February 9, 2022

By Daniel Leussink and Kaori Kaneko

YOKOHAMA/TOKYO (Reuters) – Japan needs a “more credible” target date than fiscal 2025 for achieving a balanced primary budget, an official at rating agency Moody’s Investors Service said on Wednesday.

Christian de Guzman, a senior vice president in the agency’s sovereign risk group, also said Japanese households are in a good position to spend once coronavirus curbs are removed and there is greater confidence about reopening the economy and international borders.

Last month, Japan stuck to its fiscal 2025 target for achieving a primary budget balance, even after rolling out massive spending to soften the social and economic blow from the coronavirus pandemic over the past two years.

“In order to achieve some semblance of material fiscal consolidation and balance sheet repair, there does need to be a more credible target with the necessary actions underlying that,” De Guzman told Reuters in an online interview from Singapore.

Japan entered the pandemic already saddled with debt more than double the size of its $4.6 trillion economy, which means the fiscal strain from the stimulus it deployed during the crisis could be more serious than for other countries.

When asked how far Japan should push back the target – which serves as a key gauge of diagnosing a country’s fiscal health – De Guzman said Moody’s had no specific recommendation.

De Guzman added that Moody’s already said in 2019, before the health crisis, that Japan’s fiscal 2025 target was unrealistic, and the pandemic put it further away from it.

“We don’t think that it’s achievable at this point, given the current policy settings, especially in light of the ongoing accommodation being provided to the economy,” De Guzman said.

The government may need to take new measures to promote growth and increase revenues, he added.

“We can’t rely only on expenditure consolidation to get you to that primary balance target.”

While Japan’s debt burden is large, Tokyo’s ability to fund its debt remains stable as a lot of the funding is, directly and indirectly, coming from “very robust” private-sector balance sheets, he added.

Moody’s rating on Japan is A1, which is four notches below its top rating. Its outlook for Japan is stable.

(Reporting by Daniel Leussink in Yokohama and Kaori Kaneko in Tokyo; Editing by Simon Cameron-Moore)