Japan sees first primary balance surplus in 28 years in 2026

[TOKYO] Japanese Prime Minister Sanae Takaichi said that the nation’s primary balance is set to return to a surplus for the first time in 28 years, in an apparent attempt to ease market concerns over her proactive stance on spending.

“The national government’s initial Budget is set to see a primary balance surplus for the first time since 1998,” Takaichi told reporters on Friday (Dec 26), after the Cabinet approved a record annual Budget of 122.3 trillion yen (S$1 trillion) for fiscal 2026 earlier in the day.

“I believe we have put together a Budget that strikes a balance between achieving a strong economy and ensuring fiscal sustainability,” she added.

Securing a primary balance surplus has been a government goal for more than two decades.

The key fiscal benchmark is the difference between government revenue and spending, excluding debt-servicing costs. Finally achieving that goal offers support for the view that Japan’s government is addressing concerns about the nation’s finances. 

While Takaichi has said she wants to focus on other yardsticks for measuring progress in improving fiscal health, a primary surplus offers support for her characterisation of the government’s expansive fiscal policy as “responsible”. 

The primary balance at the national level is projected at a surplus of 1.34 trillion yen in the Budget for the fiscal year starting in April, said the finance ministry.

The official Cabinet Office figure for the balance will likely be unveiled next month after factoring in other data, including local government figures.

Given that local governments have posted primary surpluses in recent years, Japan is likely to meet the primary balance target under the Cabinet Office measure. The situation could change if Takaichi’s government issues an extra Budget during the next fiscal year.

SEE ALSO

Capital allocation in Asia remains the same despite EDP Renewables exiting several markets

Japan proposes record Budget spending while curbing fresh debt

BOJ cuts monthly bond purchase amount by 400 billion yen

Takaichi has been trying to reassure markets about her commitment to fiscal discipline, at a time when government bond yields continue to rise, partly on concerns that spending in the debt-laden nation may get out of hand. Benchmark 10-year yields climbed to 2.1 per cent last week, the highest level in 27 years. 

The latest Budget underscores Takaichi’s willingness to spend to support economic growth.

Despite the increase in spending, Takaichi managed to reduce government bond issuance from the current fiscal year, as record tax revenues helped limit the need for additional borrowing.

The Takaichi administration has been moving away from using the primary balance as a key measure of fiscal health, preferring instead to focus more on bringing down the debt to gross domestic product ratio – a goal that is easier to achieve during times of inflation. 

While the government has not abandoned the primary balance as a yardstick for fiscal discipline, Finance Minister Satsuki Katayama said that the administration is looking at it over multiple years rather than focusing on single year results.

Japan’s government initially aimed to achieve a primary balance surplus in fiscal 2011, but kept pushing back the timeline for more than a decade. BLOOMBERG