Japan’s Takaichi abandons annual budget target, takes softer fiscal consolidation stance

Japanese Prime Minister Sanae Takaichi has signalled a major shift in fiscal policy, saying her government will drop the annual target for achieving a primary budget surplus in favour of a multi-year framework.

Speaking in parliament on Friday, Takaichi said progress in restoring Japan’s finances will be judged “over a span of several years,” effectively diluting the country’s long-standing fiscal consolidation goal.

Her administration plans a new stimulus package to offset rising living costs and boost investment in growth sectors and defence. Analysts see the move as another sign of Tokyo prioritising growth over budget tightening, even as public debt remains more than twice the size of the economy — the highest among major economies.

The change marks a clear break from past administrations that used the annual primary balance target as proof of fiscal discipline. Takaichi, a known advocate of government spending, has criticised the metric as too restrictive and out of step with global norms.

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The shift away from Japan’s annual fiscal target signals a more expansionary policy stance under Takaichi, reinforcing expectations of continued fiscal stimulus. Markets will likely view the move as supportive for growth but negative for the yen and bond stability.