Japan pursuing biggest fiscal shake-up since World War II, Finance Minister Katayama says – Firstpost

Japan is undertaking the most sweeping overhaul of its budget system since the end of World War II, Finance Minister Satsuki Katayama said, as the government seeks to modernise fiscal management while retaining flexibility to respond to inflation, geopolitical shocks and a shifting monetary policy landscape.

Her remarks come at a pivotal moment for Japan’s economy, which is grappling with rising energy costs, persistent inflationary pressures and growing expectations that the Bank of Japan (BOJ) will continue normalising monetary policy after years of ultra-loose settings.

“As for budget system reform, this is clearly the biggest overhaul since the end of the war,” Katayama said. “That’s the level of commitment we’re bringing to it.”

The government’s fiscal reform drive follows the recent passage of a supplementary budget worth 3.1 trillion yen (about $19.4 billion), including a 2.5 trillion yen reserve fund aimed at addressing inflationary pressures linked to the conflict in West Asia and broader volatility in global energy markets.

The reserve fund is designed to give policymakers greater flexibility to respond quickly to economic shocks without requiring immediate parliamentary approval for fresh spending measures.

Although Prime Minister Sanae Takaichi has previously signalled a desire to reduce Japan’s reliance on supplementary budgets and strengthen fiscal discipline, Katayama indicated that the government remains prepared to deploy additional fiscal support if conditions deteriorate.

The comments underscore the balancing act facing the Takaichi administration as it seeks to rein in spending while shielding households and businesses from the impact of rising living costs and external economic risks.

The fiscal overhaul is unfolding alongside a potentially significant shift in Japan’s monetary policy.

Economic Revitalisation Minister Minoru Kiuchi said on Tuesday that he hopes the BOJ will continue to work closely with the government to achieve its 2 per cent inflation target on a sustainable basis.

Speaking at a press conference, Kiuchi stressed that decisions on specific monetary policy measures remain the central bank’s responsibility. Asked about the possibility of a near-term interest rate increase, he declined to comment directly but noted that recent rises in Japanese government bond yields reflected market supply-and-demand dynamics and signs of a moderate economic recovery.

“Rising interest rates affect the economy through various channels, so we will continue to scrutinise rate moves and their effect on the economy,” Kiuchi said.

Markets are widely expecting the BOJ to raise its short-term policy rate to 1 per cent from 0.75 per cent at its policy meeting ending June 16, unless a sharp escalation in the conflict in West Asia triggers market turmoil.

Bond yields have risen globally in recent weeks as investors assess the inflationary impact of higher fuel prices and concerns that central banks may struggle to keep pace with mounting price pressures.

Kiuchi is regarded as being close to reflationist policymakers within Takaichi’s government who favour maintaining supportive fiscal and monetary settings to sustain economic growth even as inflation remains above the BOJ’s target.