Japan’s document $ 1 billion finances underscores COVID-19’s problem to progress and debt, in line with Reuters

© Reuters. FILE PHOTO: People in protective masks make their way to a business district in Tokyo

From Tetsushi Kajimoto

TOKYO (Reuters) – Japan’s cabinet on Monday approved a record $ 1.03 trillion draft budget for the next fiscal year beginning April 2021, the Treasury Department said as coronavirus and stimulus spending put pressure on already poor public finances exercise.

The annual budget of 106.6 trillion yen ($ 1.03 trillion) was also boosted by record spending on military and welfare. It was a 4% increase from original levels this year for nine straight years, with new debt accounting for more than a third of sales.

From Europe to America, policymakers around the world have sparked a barrage of monetary and fiscal stimulus to prevent a deep and prolonged recession as the pandemic closed international borders and left many unemployed.

In Japan, tax reform halted as Prime Minister Yoshihide Suga prioritized efforts to contain the pandemic and promote growth, despite the national debt being more than double the size of the Japanese $ 5 trillion economy.

“How the coronavirus response can be reconciled with the tax reform has hardly been discussed in Japan,” said Izuru Kato, chief economist at Totan Research. “The extremely low interest rates under the Bank of Japan’s continued easing of monetary policy may have crippled fiscal discipline.”

The spending plan, which was in line with a Reuters report last week, is due for parliamentary approval early next year.

It will roll out as a combined 15-month budget along with a third additional budget for this fiscal year, targeting seamless spending to ease virus pain and supporting Suga’s goal of achieving carbon neutrality and digital transformation.

The government’s primary budget deficit for fiscal year 2021 – excluding new bond sales and debt servicing – is 20.4 trillion yen, more than double the original estimates for that year, making the goal of balancing the budget further elusive.

The rating agency Fitch lowered its outlook on the Japanese debt rating from stable to negative in July and warned of the effects of COVID-19 on rising national debt.

“The massive stimulus spending introduced this fiscal year could raise concerns about the ‘fiscal cliff’ which could justify calling for more spending in the coming fiscal year,” said Koya Miyamae, senior economist at SMBC Nikko Securities.

($ 1 = 103,3100 yen)

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