Historically Expanded Deficit

Japanese economy relies further on deficit of future generation. Cabinet led by Prime Minister Fumio Kishida decided on Friday an extra budget that would amount new record of ¥36 trillion ($317 billion) of spending, two-third of the amount would be appropriated by new issuance of government bonds. Total balance of accumulated bonds is going to reach historical new high of ¥1 quadrillion at the end of next March. The government has shown no reliable plan of repayment.

    Upholding policy change from growth-oriented to distribution, Kishida focuses on helping people damaged from COVID-19 infection. The stimulus package includes ¥100 thousand relief for a child 18 years old or younger, for a college student with little income and for a family with income as low as resident tax is exempted. Mid- or small businesses that sufferes from economic downturn will receive government support for their revitalization. 

    Kishida is eager to raise salary of fundamental workers, such as nurses or workers for institutes caring aged people. The package includes spending for them or employers who raised their employees’ wage. The government is looking to restart of subsidizing domestic travel, and increasing budget for local governments. The administration surely added stimulus plan for building infrastructure, with traditional slogan of Liberal Democratic Party called Homeland Reinforcement.

    The question is who pays for that. At the beginning of FY 2021, the government appropriated the budget with spending more than ¥100 trillion. Budgetary total amount of this year will be about ¥142 trillion, the highest next to previous year’s ¥175 trillion. Although Japanese government once made a plan of balancing deficit by 2020, the time limit has been extended with growth-oriented policies of previous administrations. According to a report of Asahi Shimbun, Fiscal situation of Japan is extraordinarily exacerbated among developed countries. The ratio of governmental deficit to gross domestic product is 256.2% in Japan, excessively higher than 127.1% in United States or 68.9% of Germany.

    Getting rid of deflation has long been a main target of Japan’s economic policy. However, aimed inflation of raising commodity price by 2% has never been achieved. Fundamental element is that the people are too worried about their future to spend their money as much as contributing the targeted inflation. It is argued that the people are more tending to save their money for their unpredictable future. COVID seems to have given crucial damage on consumption expanding policy.