Gov‘t debt outlook updated: Government estimates appear optimistic

Research evidence excerpt

Gov‘t debt outlook updated: Government estimates appear optimistic

Barclays | Japan Economics Focus

Updating our fiscal outlook based on the latest developments in fiscal

policy and the JGB market

Long-term yields rise amid a flurry The Takaichi administration has stepped up activity on the fiscal policy front. On 24 June, it

of fiscal developments related to, released a public-private investment plan totaling more than JPY370trn, and on 30 June, it

eg, public-private investment, presented the draft Basic Policy on Economic and Fiscal Management and Reform (“Basic

consumption tax cuts and defense Policy”) and the draft Japan Growth Strategy centered on the public-private investment plan. In

spending addition, regarding the consumption tax cut on food advocated by PM Takaichi, it postponed

the national council’s interim summary that was initially scheduled for June. Meanwhile, in the

JGB market, long-term yields have continued to rise, with the 10y yield recently trading in the

2.8% range. Going forward, the Basic Policy is expected to be approved by the Cabinet this

month, and discussions on higher defense spending and its funding sources are likely to get into

full swing from autumn. In light of these fiscal developments and reflecting our latest economic

and interest rate forecasts, we have updated our fiscal outlook, centered on the government

debt/GDP ratio.

Revisiting fiscal spending related to the JPY370trn public-private

investment plan

True fiscal burden may be around First, we revisited the fiscal spending related to the more than JPY370trn in public-private

JPY1-2trn per year investment – a key point affecting the fiscal outlook. We have argued that the net increase in

the fiscal burden is not as large as the headline investment amount because: 1) the