Japan fiscal deficit likely to improve substantially with revised mid-to-long-term forecast

The new Japan's fiscal forecast shows a significant upward revision in the government's projection of the fiscal balance.

Japan's primary deficit is expected to improve to -JPY6.2tn, or -1.0% of GDP by FY2020. This is a JPY3.2tn improvement from the previous projection (JPY9.4tn) announced in February 2015. Within the JPY3.2tn upward revision in the deficit forecast, JPY1.8tn is explained by measures to limit expenditure while JPY1.4tn comes from measures to increase revenues.

"The government is unlikely to take any severe measures to improve the primary deficit to achieve the goal. One reason is that, as mentioned before, the primary balance goal is merely the second objective, not the first", says Societe Generale. 

Despite the upward revision, the goal of achieving a primary balance surplus by FY2020 still has not been achieved, according to the government's projection. Against this backdrop, it would be natural to expect further expenditure measures in order to achieve the primary balance goal.

"Another reason is that there is upside risk to the government's fiscal balance forecast, and there is probably no need for additional measures to improve the primary deficit", added Societe Generale.