Japan – overcoming fiscal fear

My view is that a lot of the recent commentary about JGBs and Japan's fiscal position is off-the-mark.

• PM Takaichi's expenditure plans have been more conservative than has often been portrayed.
• The government isn't without fiscal space, given a rise in tax revenue that has been both structural and cyclical.
• Government liabilities matter, but the asset side is now more important than it used to be, the result of a big restructuring since 2013.

The implication is that while JGBs and the JPY are being driven by a range of factors, fiscal issues don't justify the sell-off in recent months.

I originally laid out some of the details in these two notes:

Japan – overcoming fiscal fear

The supplementary budget looks big, but this year’s fiscal deficit is still budgeted to narrow. Gross debt is high, but the government’s net liabilities have fallen. Interest rates have risen, but before Takaichi took office, net annual interest payments by the government had fallen to near zero.

East Asia EconPaul Cavey

Japan – a big budget...but also a budget surplus

Headlines that the FY2026 budget is the biggest ever suit the idea of Takaichi as an Abe-style loosener. However, government expenditure is stable relative to GDP, revenue is rising more, a primary surplus is planned, and though Q125, the government received more in interest than it paid out.

East Asia EconPaul Cavey

And I bring the arguments together in this latest video: