Japan’s Takaichi pushes to overhaul budget process to boost growth

Investing.com -- Japan will restructure its budget process to increase investment in growth areas and improve crisis response capabilities, according to Prime Minister Sanae Takaichi's first economic blueprint released Tuesday.

The new approach will replace the current annual budget system with a framework better designed to strengthen growth potential and expand the nominal economy, the blueprint stated. The government plans to leverage rising nominal tax revenues from inflation to fund spending initiatives.

Japan will establish a multi-year framework targeting strategic sectors alongside its annual budget, which currently sets spending limits for most items. The government aims to collaborate with the private sector to direct resources into strategic industries, with combined public and private investment expected to surpass 370 trillion yen ($2.28 trillion) through fiscal 2040.

The blueprint outlined plans to boost gross domestic product to nearly 1,100 trillion yen by fiscal 2040 through initiatives in artificial intelligence, semiconductors, and space development.

Since assuming office in October, Takaichi has committed to what she calls a "responsible, proactive fiscal policy" aimed at addressing decades of under-investment that weakened Japan's economy and global competitiveness. Bond yields have risen as investors express concern about the impact on Japan's finances.

The government will eliminate annual targets for achieving a primary budget surplus, instead managing it as an indicator over multiple years. Japan will also end the practice of compiling extra budgets annually by including all non-emergency expenditure in the annual budget.

"Even if an extra budget becomes necessary this autumn onward, it will be limited to truly high-emergency spending," the blueprint said.

The document emphasized that "stably lowering Japan's combined national and regional debt-to-GDP ratio is core to our policy." It also called on the Bank of Japan to align monetary policy with government growth efforts.

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