“Record” budget masks continued fiscal tightening

While the budget for the coming fiscal year foresees record spending, expenditure will only rise marginally and revenues may climb even faster. The upshot is that the government is set to proceed with fiscal tightening. While there is no pressing need to do so, continued austerity provides a buffer against the inevitable widening of the budget deficit during the next economic downturn. But it also implies that the Bank of Japan will have to keep policy loose for longer.