By Daniel Leussink and Kaori Kaneko
YOKOHAMA/TOKYO (Reuters) – Japan needs a “more credible” target date than fiscal 2025 to achieve a balanced primary budget, an official with ratings agency Moody’s Investors Service said on Wednesday.
Christian de Guzman, senior vice president of 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 in the reopening of the economy and international borders.
Last month, Japan stuck to its fiscal 2025 target of achieving a primary fiscal balance, even after rolling out massive spending to cushion the social and economic blow of the coronavirus pandemic over the past two years.
“In order to get some semblance of significant fiscal consolidation and balance sheet repair, there needs to be a more credible objective with the necessary actions underlying it,” De Guzman told Reuters in an online interview from Singapore.
Japan entered the pandemic already struggling with debt more than double the size of its $4.6 trillion economy, meaning that fiscal pressure from the stimulus measures it rolled out during the crisis could be more serious than for other countries.
When asked how far Japan should push the target — which serves as a key indicator for diagnosing a country’s fiscal health — De Guzman said Moody’s had no specific recommendation.
De Guzman added that Moody’s had already said in 2019, before the health crisis, that Japan’s fiscal 2025 target was unrealistic and that the pandemic was pushing it further away from it.
“We don’t think that’s feasible at this point, given the current political parameters, especially in light of the ongoing adjustment measures being provided to the economy,” De Guzman said.
The government may need to take further steps to promote growth and raise incomes, he added.
“We can’t rely on expense consolidation alone to get you to that primary balance goal.”
While Japan’s debt burden is significant, Tokyo’s ability to finance its debt remains stable as much of the financing comes, directly and indirectly, from “very strong” private sector balance sheets, he added. .
Moody’s rating on Japan is A1, four notches below its best rating. His outlook for Japan is stable.
(Reporting by Daniel Leussink in Yokohama and Kaori Kaneko in Tokyo; Editing by Simon Cameron-Moore)
Copyright 2022 Thomson Reuters.