Chapter 2 2.7

Japan's Primary Balance History

Three decades of primary balance deficits and repeatedly postponed fiscal targets

Japan’s Primary Balance History: 30 Years of Deficits

Japan has struggled to achieve a primary balance surplus for over three decades. Understanding this history is key to understanding the debt crisis.

Timeline

Period Primary Balance Status Key Events
1990-1993 Small surpluses Bubble economy era, tax revenue at peak (¥60.1T in 1990)
1994-2001 Deep deficits (-¥15-20T) Post-bubble recession, Lost Decade begins, stimulus spending
2002-2008 Surpluses (+¥0.5-8T) Only period of sustained surplus in modern history - Koizumi reforms, revenue recovery
2009-2011 Massive deficit (-¥25-30T) Global Financial Crisis, Great Tohoku Earthquake (2011)
2012-2019 Improving deficit (-¥10-15T) Abenomics era, consumption tax hikes (2014, 2019)
2020-2021 Record deficit (-¥55-65T) COVID-19 pandemic - emergency stimulus, collapsed revenue
2022-2024 Narrowing deficit (-¥10-15T) Post-COVID recovery, improving tax revenue (¥69.6T in FY2024)
2025 Deficit (-¥4.5T, -0.7% GDP) Record ¥115.5T budget; tax revenue ¥78.4T; Ishiba’s ¥13.9T stimulus reversed July’s +¥0.8T surplus projection

The Critical Insight

Japan achieved a primary surplus for only 7 years out of 34 (2002-2008). Every other year has been deficit spending, meaning:

  • The government has continuously borrowed for operations, not just for interest
  • Debt has grown faster than GDP for three decades
  • The debt-to-GDP ratio exploded from 60% (1990) to 264% (2024)

The 2002-2008 surplus period is often cited by fiscal hawks as proof that consolidation is possible—it happened under Prime Minister Koizumi’s structural reforms (spending cuts, postal privatization, reduced public works). However, critics note it required strong GDP growth (1.5-2% annually) and painful spending cuts to social programs.

The Moving Target: Japan’s Postponed Fiscal Goals

The Japanese government has set—and repeatedly delayed—primary balance surplus targets for over 15 years. This history reveals the political difficulty of fiscal consolidation.

Target Timeline

Year Announced Original Target Result
2010 Primary surplus by FY2020 Target missed; postponed to 2025
2015 Primary surplus by FY2020 (reaffirmed) COVID-19 pandemic; abandoned
2018 Primary surplus by FY2025 Postponed to 2026 in 2023
2023 Primary surplus by FY2025 (reaffirmed) Missed—Ishiba stimulus reversed July 2024 projection
2025 Primary surplus by FY2026 (current target) Yet to be achieved

Current Government Goal (as of January 2025)

Cabinet Office Fiscal Projection (January 17, 2025):

  • FY2025: -¥4.5 trillion deficit (-0.7% of GDP)
    • Reversed from +¥0.8T surplus projected in July 2024
    • Ishiba’s ¥13.9T economic package (October 2024) increased spending
    • Target formally abandoned within 6 months of projection
  • FY2026: +¥0.8 to +¥2.2 trillion surplus (depending on growth scenario)
    • Baseline scenario (0.5% real growth): +¥0.8T surplus
    • Growth scenario (1.5% real growth): +¥2.2T surplus
  • FY2030: +¥3-5 trillion surplus (projected under growth scenario)

Assumptions required to hit 2026 target:

  1. Real GDP growth of 1.0-1.5% annually
  2. Nominal GDP growth of 2.5-3% annually (inflation + real growth)
  3. No major recession or crisis (COVID, earthquake, natural disasters)
  4. Spending restraint despite defense increases (2% GDP target) and aging costs
  5. No supplementary budgets in FY2025 or FY2026

Market skepticism: Most economists and rating agencies consider the 2026 target highly optimistic given:

  • Social security spending rising ¥1T+ annually due to aging demographics
  • Debt servicing costs doubling by 2030 as BOJ normalizes rates (IMF estimate)
  • Political pressure for stimulus spending remains high
  • No concrete revenue-raising measures (consumption tax hike) planned

References

  1. Cabinet Office, Japan. “Economic and Fiscal Projections for Medium to Long Term Analysis.” January 17, 2025. Available at: https://www5.cao.go.jp/keizai3/econome/projection202501.pdf.

  2. Ministry of Finance, Japan. “Japanese Public Finance Fact Sheet April, 2025.” Available at: https://www.mof.go.jp/english/policy/budget/budget/fy2025/02.pdf.

  3. Ministry of Finance, Japan. “Highlights of the FY2025 Draft Budget.” Available at: https://www.mof.go.jp/english/policy/budget/budget/fy2025/01.pdf.

  4. Ministry of Finance, Japan. “Debt Management Report 2025.” Available at: https://www.mof.go.jp/english/policy/jgbs/publication/debt_management_report/2025/esaimu2025.pdf.