Fitch eyes Japan budget for balance between growth and fiscal discipline

Business Recorder reported, citing Reuters, that Fitch Ratings will examine Japan's budget for the next fiscal year for signs of whether Prime Minister Sanae Takaichi can pair her growth-focused spending with fiscal discipline. Senior director Jeremy Zook, who oversees Asia-Pacific sovereign ratings at Fitch, said the makeup of the final budget proposal would show how the government balances its responsible and proactive policy aims. He made the comments in an interview with Reuters.

Japan's budget requests for the coming year have reached a record high, partly because of a new framework that combines initial and supplementary budget spending. Higher government borrowing costs, which the report links to Takaichi's expansionary fiscal agenda, have also added to the pressure. Zook said the primary balance, which strips out debt-servicing costs, will be the key indicator to watch.

Fitch expects Japan's debt-to-GDP ratio to keep falling over the next five years, helped by firmer nominal growth and higher tax income, before it levels off. Zook said the outcome could depend heavily on the success of Takaichi's investment programme for strategic industries, and that private sector leadership would likely be most effective. Fitch reaffirmed Japan's A rating in January with a stable outlook, and Zook said the risks are balanced.