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Japan considers new target to reduce fiscal deficit to 3% of GDP

JIJI

The government is considering setting a new target to reduce Japan’s fiscal deficit to 3 percent of nominal gross domestic product by fiscal 2021, informed sources said.

The government hopes to include the target in its new guidelines for economic and fiscal policy management, which could be released as early as June, because it believes that interest payments on bonds may soar, the sources said Friday.

The target was proposed by the government’s influential Council on Economic and Fiscal Policy, which drafts policy guidelines.

The European Union has a similar target for EU member countries.

Japan’s fiscal deficit is forecast to hit 4.4 percent of nominal GDP in fiscal 2018 ending April, according to medium- to long-term economic and fiscal estimates made by the Cabinet Office in January.

The Cabinet Office projects the ratio will stabilize below 3 percent from the early 2020s due to low interest rates and an expected rise in tax revenue if the second stage of the doubling of the consumption tax actually takes place in October 2019.

The deficit would, however, rise back above 3 percent from fiscal 2026 after a few years if economic growth falters, according to the estimates.

The government will place weight on the new target and the existing one to turn the primary budget balance into a surplus — a situation in which the country does not have to rely on debt to finance spending on policy measures, the sources said.

The government is considering moving back the deadline for achieving the surplus by five years to around fiscal 2025. The revised target will also be included in the upcoming economic and fiscal policy guidelines, they said.