Japan will have a primary deficit of 3.1 percent of gross domestic product in the year, the Cabinet Office said in a release in Tokyo today. The projections are based on the assumption the world’s third-largest economy grows about 1 percent annually. The government had wanted a primary balance, achieved when revenue matches spending after the exclusion of debt-servicing costs, by the year ending March 2021.
The Cabinet Office said “further fiscal improvements would be necessary” to meet the goal, an indication Prime Minister Yoshihiko Noda’s planned tax increases aren’t enough to contain debt that’s about twice the size of annual economic output. Standard & Poor’s in November said Noda’s administration hasn’t made progress in tackling the issue and indicated it may be preparing to lower the nation’s sovereign grade.
“The government is hamstrung,” Matthew Circosta, economist at Moody’s Analytics in Sydney, said before the report was released. “It’s very difficult to support the economy while they have debt problems.”
Tax Plan
Noda’s ruling Democratic Party of Japan plans to raise the sales tax to 8 percent in April 2014 and then to 10 percent in October 2015. Lawmakers opposing the increase in the levy have said it may hamper growth at a time when the economy is recovering from the March 2011 record earthquake.
The nation’s expansion has shown signs of slowing recently, with exports slumping for two months and factory output falling more than economists forecast as Europe’s debt crisis damps global growth.
The country will have a primary deficit that’s 3.6 percent of GDP in the year starting April 2015, today’s report showed. The government in 2010 set a goal of halving the ratio to about 3.4 percent in five years.
Japan, which has enjoyed borrowing costs that are around 1 percent, wouldn’t be able to manage its finances if bond yields surged to 3 percent, Noda said this month. The country risks seeing a spike in government bond yields unless it controls the outstanding borrowing set to approach 230 percent of gross domestic product in 2013, the Organization for Economic Cooperation and Development said on Nov. 28.
Negative Outlook
France and Austria lost their top credit ratings this month in a string of European sovereign downgrades that left Germany with the area’s only stable AAA grade, as S&P warned that crisis-fighting efforts are still falling short. S&P rates Japan AA- and has had a negative outlook since April.
The sales tax proposal still needs to be approved by parliament, which today convenes this year’s session. About 57 percent of the public opposes raising the levy, and the approval rating for Noda’s Cabinet fell to 29 percent from 31 percent last month, according to a survey by the Asahi newspaper.
The Cabinet Office also forecast Japan’s consumer prices will rise 0.1 percent in the next fiscal year and keep advancing through the projected period through 2023.
The forecasts are calculated based on central government debt. When local municipalities are included, the country will have a deficit of 3.3 percent of GDP in fiscal 2015 and 3 percent in fiscal 2020, the government said.
To contact the reporter on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net
To contact the editor responsible for this story: Chris Anstey at canstey@bloomberg.net
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