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Japan needs to tackle challenges posed by its low birthrate and aging society for the economy to grow...but it seems that the government is not serious about solving them, given its reluctance to take in immigrants for example.
Japan needs to tackle challenges posed by its low birthrate and aging society for the economy to grow...but it seems that the government is not serious about solving them, given its reluctance to take in immigrants for example.

Deficit-Ridden Japan Faces Tough Road Ahead

The country will continue to struggle to rein in its deficit as social security costs, which currently account for roughly 30% of government spending, are expected to keep increasing in coming years as the number of retirees mushrooms

Deficit-Ridden Japan Faces Tough Road Ahead

Japan's goal to restore its fiscal health, the worst among developed countries, is still far off amid prospects for tepid economic growth and swelling spending on health, pensions and defense.
Furthermore, reining in spending and boosting tax revenue have become more difficult since a consumption tax hike was twice postponed and the yen appreciated against the US dollar to the detriment of exporters' profits, Kyodo reported.
As difficulties mount, many economists believe Japan will not be able to meet its target of achieving a primary surplus by fiscal 2020 as internationally pledged, let alone an interim milestone set for fiscal 2018.
"Should attaining the targets be dropped or postponed, confidence in Japan's finances will be eroded," said Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance Co. "Since the delaying (in 2016) of the consumption tax hike, the administration's commitment or willingness to restore fiscal health has been waning," he said.
A primary balance deficit means a country cannot finance its annual government budget without issuing new bonds, even when debt-servicing costs are excluded.

Deficit to Rise
Japan's primary deficit in fiscal 2020 is now expected to total 8.3 trillion yen ($72.2 billion), up from 5.5 trillion yen projected in July. And its ratio to nominal gross domestic product is projected at 1.4%, up from 1%, according to the cabinet office.
But analysts at SMBC Nikko Securities Co. paint an even bleaker picture, putting the ratio at around 3% in fiscal 2020.
The government scenario is less pessimistic, as the cabinet office expects the economy will expand by 3% or more in nominal terms, and by at least 2% in real terms, over the medium- to longer-term. "Economic revitalization comes first and foremost. If that foundation collapses, nothing can be achieved (in terms of fiscal reconstruction)," a senior government official said.
Yet despite repeated actions by the government of Prime Minister Shinzo Abe to stimulate faster growth, consumer spending remains sluggish, in part a result of a sales tax hike that triggered a surge in spending before it took effect in 2014. That hike in the consumption tax—from 5 to 8%– was implemented to cover ballooning social security costs, as is the twice postponed plan to raise it further to 10%.
If Japan misses the interim target of bringing the ratio of its primary deficit to nominal GDP to around 1% in fiscal 2018, that will be blamed on postponing the further hike to October 2019 from April 2017, according to some economists.
And Japan will continue to struggle to rein in its deficit as social security costs, which currently account for roughly 30% of Japanese government spending, are expected to keep increasing in coming years as the number of retirees mushrooms.
Tackling Challenges
"Japan needs to tackle challenges posed by its low birthrate and aging society for the economy to grow...but it seems to me that the government is not serious about solving them, given its reluctance to take in immigrants for example," said Yasunari Ueno, chief market economist at Mizuho Securities Co.
The world's third-largest economy is expected to grow moderately this year, though much depends on US President Donald Trump, who has pledged to boost infrastructure spending and cut taxes but also adopted a protectionist stance on trade.
"We know that the effects (in Japan) of increasing public investment or building roads, for instance, will be limited. What matters is where money is spent," Ueno said.
Still, the government draft budget for the fiscal year starting in April totals a record-high 97.45 trillion yen—and some economists predict an extra budget will also be compiled later in the year.
Government officials stress the need for efforts to curb spending, with Economic and Fiscal Policy Minister Nobuteru Ishihara saying recently "we need a strong will to do it" for the sake of fiscal rehabilitation.
But it is difficult to curb not only social security expenditures but also policy-related outlays, especially when defense spending looks set to keep rising.

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