Japan's fiscal balance improving as the economy improves

The Japan's fiscal balance has improved significantly from -8.9% of GDP in Q2 2012 to -4.7% in Q4 2014. This primarily reflects an increase in tax revenue driven by the recovering economy. 

Any austerity policies such as tax increases will pose a downside risk to Japan's expanding monetary economy, which may delay progress towards a complete exit from deflation.

Considering the risk of Japan being unable to fully exit from deflation, Prime Minister Shinzo Abe's decision to postpone the second CT hike from October 2015 to April 2017 was most favurable.