Japan panel asks for targeted budget allocation amid fiscal health concerns

On Wednesday, a prominent Japanese government panel urged for more targeted budget allocation, expressing concerns over the country's fiscal health under Prime Minister Sanae Takaichi. During the meeting, which took place shortly after Takaichi's Cabinet reshuffle on September 17th, participants deliberated on strategies to preserve market confidence while pursuing a "responsible and proactive" fiscal policy.

Takaichi emphasized the importance of creating a clear path towards both economic strength and fiscal sustainability. The bond market has shown signs of unease regarding Japan's fiscal outlook, with yields on the benchmark 10-year Japanese government bond reaching their highest level since August 1996. Private sector members of the council, including Masazumi Wakatabe, a Waseda University professor and former Bank of Japan deputy governor, noted that lower- and middle-income households are disproportionately affected by the rise in food prices. They proposed a consumption tax cut and income-based cash payments as effective forms of support.

The council urged the government to curtail temporary measures, such as subsidies for electricity and gas bills and gasoline, since they may no longer be effective. The council stressed the necessity for transparency in the budget-making process, advocating for mechanisms to evaluate the impact of individual policies and permit flexible revisions.

Furthermore, they called for close monitoring of the consequences of rising interest rates on households and businesses, while acknowledging the Bank of Japan's independence in deciding whether to adjust its policy interest rate.