By Yoshifumi Takemoto
TOKYO (Reuters) – Japan’s government is expected to stick to its goal of achieving a primary budget surplus by the fiscal year-end in March 2026 in a key mid-year policy outline due out later next month, three sources with direct knowledge of the matter told Reuters.
The government is aware of the need to put its fiscal house in order in the face of an expected rise in interest rates and a weakening currency, one of the sources said.
Years of unconventional monetary stimulus, which saw Japan maintain rates near the zero-bound levels, effectively helped finance government debt and undermined fiscal discipline.
However, the Bank of Japan’s historic decision in March to end negative rates and other remnants of its unconventional monetary policy signalled that the days of cheap money was coming to end.
“A number of LDP lawmakers are now increasingly showing understanding towards the budget balancing target as rising interest rates become apparent,” said a senior LDP lawmaker.
A Cabinet Office official said: “We can no longer set a loose fiscal target given the weak yen and rising interest rates.”
The government own projections showed in January that even assuming a rosy economic growth target at 1.3% in fiscal 2025, the primary budget balancing would be 1.1 trillion yen ($7 billion) shy of the budget balancing target.
($1 = 156.8700 yen)
(Writing by Tetsushi Kajimoto; Editing by Shri Navaratnam)
