The Japanese government has declared a policy shift toward aggressive fiscal spending, setting goals of 3% nominal gross domestic product (GDP) growth and 1% real GDP growth.
According to Kyodo News and the Yomiuri Shimbun on Sunday, the Japanese government held a Council on Economic and Fiscal Policy meeting the previous day and presented a draft of the "Honebuto" policy, the basic guideline for economic and fiscal management and reform, which includes these measures.
The draft designates fiscal year 2027 (April 2027 to March 2028) as the first year of responsible aggressive fiscal policy and sets a goal of establishing a mid- to long-term economic and fiscal plan through fiscal 2040. Through this, the Japanese government plans to pursue fiscal expansion centered on growth sectors starting with the fiscal 2027 budget proposal.
According to the draft, the new policy will create a "Investment in a Strong and Prosperous Japan" category that sets no spending caps on relevant ministry budgets, in order to achieve nominal GDP growth of 3% or more and early attainment of 1% real GDP growth reflecting prices.
Moving away from the existing single-year budget compilation method, the government will introduce a multi-year budget management approach. The Japanese government envisions growing the economy by concentrating investment in 17 growth strategy sectors, utilizing multi-year projects and an investment framework with no caps.
Earlier, the Japanese government had set a goal of activating private investment and boosting the international competitiveness of key industries through government investment in 17 sectors, including physical artificial intelligence (AI), semiconductors, unmanned aerial vehicles (drones), and shipbuilding.
At the Council on Economic and Fiscal Policy meeting the previous day, Prime Minister Takaichi Sanae said, "We will seek a fundamental shift toward a new economic and fiscal management that is not merely an extension of the past," adding, "We will fundamentally change the budget compilation method."
Japanese media reported on the policy that "there are also concerns that fiscal discipline related to national finances could loosen, worsening fiscal health."
The draft Honebuto policy stated that "regarding the Bank of Japan, the central bank, it is also very important that appropriate monetary policy management be carried out to realize a strong economy." This is interpreted as a message that inflation should be curbed while remaining cautious about interest rate hikes that could cool the economy.
The Honebuto policy will be decided at a Cabinet meeting later this month.
