Japan likely to achieve trade surplus by FY20

According to the latest primary deficit estimate data, only ¥6.2tn of the primary deficit will remain in FY20. But to achieve the target, main condition will be GDP must remain around 3% until FY20. The Cabinet Office's estimate shows that the general government's fiscal deficit (% of GDP) will be -6.5% in FY14, -5.5% in FY15, -4.7% in FY16, -4.3% in FY17, -3.6% in FY18, -3.4% in FY19 and -3.4% in FY20. Excluding interest payments on debt, the primary deficit (% of GDP) will be -4.4% in FY14, -3.0% in FY15, -2.5% in FY16, -2.3% in FY17, -1.7% in FY18, -1.4% in FY19 and -1.0% in FY20.

The report as on December 25, 2015 confirmed that the general government fiscal was -5.2% in FY14 (was -7.6% in FY13). This is 1.3 pp better than the Cabinet Office's fiscal deficit estimate of -6.5%.  As the actual figure for the general government's fiscal balance in FY14 was revised up by 1.3pp to -5.2% from -6.5%, we should be able to expect the same pace of improvement in FY15 and beyond.

Based on the above calculations, markets expect to achieve surplus by FY20. The Cabinet Office's mid-to long-term economic and fiscal policy projection is revised twice annually - in January-February and in June-August.  The next revision scheduled for January-February is carefully watched in order to see how the estimates will change. There is scope to reduce the tax rate by 2017 if the government achieve the trade balance target.