Aim to pacify market sentiment? Takamitsu Manana self-proclaimed: Japan will achieve its first basic fiscal surplus in 28 years by fiscal year 2026.

Japanese Prime Minister Sanae Takaichi said on Friday that the country's basic fiscal balance is expected to achieve a surplus for the first time in 28 years, and this statement is clearly aimed at alleviating concerns in the market about its stance on active fiscal spending. It is reported that the Japanese cabinet approved a record initial budget for the government for the fiscal year 2026, with a scale of 122.3 trillion yen (about 782 billion U.S. dollars). After the meeting, Sanae Takaichi told reporters, "This approved initial budget will allow the central government to achieve a basic fiscal surplus for the first time since 1998. The budget we have set focuses on revitalizing economic vitality while also considering fiscal sustainability, achieving a balance between the two." Achieving a basic fiscal surplus has been a goal of the Japanese government for over twenty years. This core fiscal indicator measures the difference between government revenue and expenditure after deducting debt interest payments. The achievement of this goal will provide strong evidence for the Japanese government's claims of actively improving the national fiscal situation. Although Sanae Takaichi had previously proposed introducing more dimensions to evaluate fiscal health, the achievement of a basic fiscal surplus this time undoubtedly adds persuasive power to defining its expansionary fiscal policy as a "responsible measure." Data disclosed by the Japanese Ministry of Finance shows that the central government's basic fiscal surplus is expected to reach 1.34 trillion yen in the new fiscal year starting in April 2026. Official Cabinet Office data is expected to be announced next month after incorporating factors such as local government data. In recent years, local governments in Japan have continuously achieved a basic fiscal surplus, and according to the Cabinet Office's statistical caliber, the nationwide basic fiscal surplus target is likely to be achieved. However, if Takaichi's cabinet introduces a supplementary budget in the new fiscal year, this situation may change. Currently, Japanese government bond yields continue to rise (partly due to market concerns that the heavily indebted country's spending may get out of control), and Takaichi has been working hard to convey its commitment to fiscal discipline to the market. Last week, the benchmark 10-year government bond yield rose to 2.1%, reaching a new high in 27 years. The newly approved budget highlights Takaichi's policy orientation to leverage fiscal spending to drive economic growth. It is worth noting that, despite the expansion of fiscal spending, thanks to record tax revenues, the government's need for additional debt issuance has been effectively restrained, and the scale of government bond issuance for the fiscal year 2026 is expected to be reduced compared to the current fiscal year. Furthermore, the Takaichi cabinet is gradually lessening the core status of the basic fiscal surplus in the fiscal assessment system, and instead focusing on reducing the debt-to-Gross Domestic Product (GDP) ratio. Achieving this goal is relatively easier during an inflationary cycle. Although the Japanese government has not completely abandoned the basic fiscal surplus as a measure of fiscal discipline, Japanese Finance Minister Katsuei Hirasawa pointed out that the indicator is being assessed over multiple years rather than a single fiscal year. It is reported that the initial target date set by the Japanese government for achieving a basic fiscal surplus was the fiscal year 2011, but over the past decade, this deadline has been extended time and time again.