Fiscal targets moving out of reach

Japan’s budget deficit has narrowed in recent years, mostly because of 2014’s sales tax hike. However, tax revenues have started to fall relative to output as corporate profits are weakening and consumer spending is sluggish. As a result, the government’s target of eliminating the primary budget deficit by 2020 is moving further out of reach. The upshot is that government debt should continue to rise relative to GDP in coming years.