Japan Balances Fiscal Discipline and Monetary Tightening

Tokyo’s current policy approach highlights a clear move toward Japan fiscal discipline alongside a gradual shift toward tighter monetary policy, as the country faces rising bond yields, a weaker yen and mounting inflationary pressures.

Prime Minister Sanae Takaichi said the upcoming fiscal year budget maintains Japan fiscal discipline despite reaching a record size, stressing that the government will avoid irresponsible reliance on debt.

The budget is set at about 122.3 trillion yen, while new government bond issuance will remain capped at 29.6 trillion yen for a second consecutive year.

Lower debt reliance

The government said the share of debt financing in the budget will fall to 24.2% from 24.9% previously, reinforcing Japan fiscal discipline and signaling improving fiscal sustainability.

Meanwhile, Bank of Japan Governor Kazuo Ueda said the central bank is prepared to continue raising interest rates if inflation and economic indicators improve, noting that core inflation is steadily approaching the 2% target.

He added that real interest rates remain extremely low, leaving room for further gradual tightening after the policy rate was raised to 0.75%, the highest level in three decades.