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Japanese Fiscal Policy and
Public Debt Management
Mar. 8. 2017
Kenta Ichikawa
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ⅠⅡⅢⅣⅠⅡⅢⅣⅠⅡⅢⅣⅠⅡⅢⅣⅠⅡⅢⅣⅠⅡⅢⅣⅠⅡⅢⅣⅠⅡⅢⅣⅠⅡⅢⅣⅠⅡⅢⅣⅠⅡⅢⅣⅠⅡⅢⅣ
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 20172018
(Source) (actual)Cabinet Office, Government of Japan "Quarterly Estimates of GDP",
(forecast)"Fiscal 2017 Economic Outlook (Dec 2016) "(Nominal GDP)
(trillion yen)
(CY)
Sep. 2008
Lehman Shock
Mar. 2011
The Great East Japan
Earthquake
Abenomics
Real GDP
Nominal GDP
2*2016 1Q, 2Q, 3Q, 4Q are annualized base
Target:
600 in 2020
(Source) Cabinet Office, Ministry of Health, Labor and Welfare,
Ministry of Internal Affairs and Communications
Employment and Wage
Consumption
3 month average
Economic Growth
2008 2009 2010 2011 2012 2013 2014 2015 20162016
1Q
2016
2Q
2016
3Q
2016
4Q
Nominal -2.1 -6.0 2.2 -1.8 0.7 1.7 2.1 3.3 1.3 3.1 1.2 0.7 1.2
Real -1.1 -5.4 4.2 -0.1 1.5 2.0 0.3 1.2 1.0 2.3 1.8 1.4 1.0
95
100
105
110
115
2008 2009 2010 2011 2012 2013 2014 2015 2016
Private Consumption Integrated
Estimates (seasonally adjusted
series)
(CY2011=100)
Consumption Tax Hike
Consumption Tax Hike(apporoved by the Diet)
（CY）
0.4
0.6
0.8
1.0
1.2
1.4
1.6
240
250
260
270
280
290
300
2008 2009 2010 2011 2012 2013 2014 2015 2016
Real Compensation of EmployeesJob Opening-to-Application Ratio (RHS)
（Seasonally adjusted、trillion yen）
（CY）
（ratio）
3
Potential Growth RateOutput gap
(Source) Bank of Japan (Source) Bank of Japan
4
Basic Idea of Abenomics－Pursuing both economic revitalization and fiscal consolidation by using all policy tools
◇GDP600 trillion yen [2016 : 540 trillion yen]◇Primary surplus of central and local governments
[2015:-3.0% of GDP]
Measures
Benchmarks for Fiscal Reform2016-18:Total increase of general expenditure from 2015 to 18 [3 years] : 1.6 trillion yen
[cf. Natural annual increase of social security expenditures : 0.64 trillion yen in 2017]
2018: Assess the progress and consider additional expenditure and/or revenue measures as necessary
2019: Consumption tax hike (8% → 10%)
Fiscal Shape In the long run－Stabilize Debt to GDP ratio earlier aiming at steady reduction over the medium term.
[2016 Central and Local Government Debt:189.5%]－Secure Fiscal sustainability despite population declining and aging society.
FY2020 Target
1) Aggressive monetary policy2) Flexible fiscal policy3) Growth strategy including structural reform
Framework of Fiscal Consolidation
-6.3 -5.4
-3.9
-3.0 -2.5 -2.3
-1.9
-3.7 -3.4
-2.4
-2.1 -1.4
-7
-6
-5
-4
-3
-2
-1
0
-3.2 (fiscal target in FY2015)
Primary Surplus Target
-11.3 trillion Yen
●
(FY)
(ratio to nominal GDP:%)
●-8.3 trillion
Yen
●:Economic Revitalization Case Average Growth Rate(FY2018-2025): Nominal GDP 3.7%, Real GDP 2.2%Interest Rate: estimate increase up to 4.4% by FY2025
▲:Baseline Case Average Growth Rate(FY2018-2025): Nominal GDP 1.5%, Real GDP 0.9%Interest Rate: estimate increase up to 1.9% by FY2025
186.7
180.1
186.0189.5 189.0
189.6
100
120
140
160
180
200
220
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
(%)
(FY)
5
Debt to GDP Ratio Projection
In the Economic Revitalization Case, the ratio of
outstanding debt to GDP is projected to decline toward
FY2025. However, it should be noted that the long term
interest rate is projected to be higher than the nominal
GDP growth rate after FY2023, then the existing bonds
which had been issued at low interest rates would be
refinanced sequentially at higher interest rates.
PB Projection
(Source) Cabinet Office
●⇒●・Continuing tight expenditure control
(Total increase of general expenditure from 2015 to 2018: +1.6 trillion yen)
・Additional expenditure and revenue measures following the 2018 interim review
5.312.3
34.0
52.042.3
54.0 52.443.5 38.6 36.2 36.6 40.9
35.9
0.4 9.0
42.4
90.5 100.8
109.0 111.0
110.2 119.4 114.2 109.1
109.3
106.1
9.4 8.4
13.1 14.2
10.714.0
13.416.5
19.6
12.0
5.7
21.3
76.4
151.8 151.5
176.2 177.5
164.3
172.0
163.9 162.2
169.8
154.0
0
50
100
150
200
1975 1985 1998 2009 2010 2011 2012 2013 2014 2015 2016 2016 2017
(trillion yen)
FILP Bonds
Refunding Bonds
Newly Issued Bonds
(FY)
(Note1) Up to FY2015: Actual figures
(Note2) Figures may not sum up to total because of rounding.(Note3) "Newly Issued Bonds" includes Reconstruciton Bonds
and Special Bonds for covering Public Pension Funding.
(Initial)
(3rd Supplementary budget)
(Initial)-0.4
-0.3
-0.2
-0.1
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
2013/01 2013/07 2014/01 2014/07 2015/01 2015/07 2016/01 2016/07 2017/01
10Y
5Y
2Y
2016/7/8-0.300%
(%)Negative Interest
Rate
QQE2QQE1 YieldCurve
Control
4
5
6
7
8
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
(Year)
(FY)
Japan
France
Germany
U.S.
9
11
13
15
17 U.K.
6
JGB Annual Issuance Amount Average Maturity of JGBｓ
JGB Yields
(Source) Bloomberg
16.2
8.4
7.16.6
5.8
(Source) Estimated by MOF based on data from websites of OECD and government debt management authorities
（unit : trillion yen）
FY2017Changes from FY2016(initial)
40-Year 3.0 ＋0.6
30-Year 9.6 ±0
20-Year 12.0 - 1.2
10-Year 27.6 - 1.2
5-Year 26.4 - 2.4
2-Year 26.4 - 1.2
TBs(1-year) 23.8 - 1.2
10-Year Inflation-Indexed 1.6 - 0.4
Auctions for Enhanced-Liquidity 10.8 ＋1.2
Total 141.2 - 5.8
（unit : trillion yen）
FY2017Changes from FY2016(initial)
Newly-issued bonds(Construction Bondsand Special Deficit-Financing Bonds)
34.4 - 0.1
Reconstruction Bonds
1.5 - 0.6
FILP Bonds 12.0 - 4.5
RefundingBonds
106.1 - 3.0
Total 154.0 - 8.2
（unit : trillion yen）
FY2017Changes from FY2016(initial)
JGB market issuance 148.0 - 4.2
Market issuance (calendar-based)
141.2 - 5.8
Non-Price Competitive Auction Ⅱ etc 6.8 ＋1.6
Sales for Households 3.0 ＋1.0
BOJ rollover 3.0 - 5.0
Total 154.0 - 8.2
〈Breakdown by Financing Methods〉〈Breakdown by Legal Grounds〉 〈Market Issuance Plan by JGB types〉
＝
7
➢ Maturity structure is designed to reflect investor demands appropriately, so that the current low interest rate
situation should be utilized smoothly and effectively.
・ Super long-term ：Effectively increased carefully assessing potential demand from investors such as
(over 10 years) life insurance companies, combining normal auctions and “Auctions for Enhanced-
Liquidity”
－ Decrease in 20-year（- 1.2 trillion yen）, increase in 40-year（＋0.6 trillion yen）
－ Increase in Auctions for Enhanced-Liquidity for Super long-term（＋1.2 trillion yen）
・ Long-term ：Decreased, reflecting weakened demand in a low interest rate environment
(10-year JGBs) （- 1.2 trillion yen）
・ Short- to Medium-term ：Substantially decreased, based on diminished demand under negative interest
(5, 2-year JGBs and 1-year TBs) rate situation（- 4.8 trillion yen）
➢ The amount of Auctions for Enhanced-Liquidity is to be increased in remaining maturity zones where strong
market demands for improved liquidity exist.
（unit : trillion yen）
FY2017
Changes from FY2016
15.5-39 Year 3.0 ＋0.6
5-15.5 Year 6.6 ＋0.6
1-5 Year 1.2 ±0
Total 10.8 + 1.2
FY2017 JGB Issuance Plan
Appendix
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
2011 2012 2013 2014 2015 2016
Nominal GDP Growth rate
CPI (less fresh food)
CPI (less fresh food & energy)
(%, change from the previous year)
(CY)
(Note) The effects of consumer tax rate change in April 2014 on CPI are eliminated.(Source) MOF, Cabinet Office, Ministry of Internal Affairs and Communications, BOJ
CPI and Consumer Confidence
9
Consumer Price Index “Do you have anxiety about
post-retirement life?”(Research by The Central Council for Financial
Services Information)
(Source)The Central Council for Financial Services Information
Top 3 reasons of “Yes”
Pension and insurance 72.5%
Insufficient financial assets 69.5%
Currently uncomfortable about daily lives 41.4%
*Multiple answers allowed
Abenomics
0.1
- 0.2
3.3
2.1
1.7
-1.8
0.7
1.3
Wage and Employment
(Source) : Ministry of Health, Labor and Welfare, Ministry of Internal Affairs and Communications
10
(million, %)
2012 2013 2014 2015 2016
Regular Employees
Change of Nominal Wages -0.3 0.4 0.9 0.4 0.8
Number of Employees 33.4 32.9 32.8 33.0 33.6
(change) (-0.4) (-1.4) (-0.5) (0.8) (1.5)
Non-regular Employees
Change of Nominal Wages 1.5 -0.4 0.5 0.5 -0.1
Number of Employees 18.1 19.1 19.6 19.8 20.2
(change) (0.1) (5.1) (2.9) (0.9) (1.8)
Total Employees
Change of Nominal Wages -0.9 -0.4 0.4 0.1 0.5
Change of Real Wages -0.9 -0.9 -2.8 -0.9 0.7
Number of Employees 51.5 52.0 52.4 52.8 53.7
(change) (-0.2) (0.9) (0.7) (0.8) (1.7)
Growth Strategy
• Reduction of Effective
Corporate Tax Rate
―37.00%(2012) → 29.74%(2018)
• Corporate Governance
(more than 3500 companies)
―Stewardship Code
(214 corporate investors)
• Electric Power Deregulation
• TPP, Japan-EU EPA
• Agriculture Structural Reform
• Drastic simplification project for
regulation and administrative
process for foreign investors
Regulation Reform
• Equal pay for equal work
－guideline released on Dec
• Increase minimum wage
―3% hike（2016）
• Increase the capacity of
child care and elderly care
―500k for each
―raise wages for care workers
• Reducing working hours and
improving labor productivity
• Lengthen the eligible period
for maternity leave benefits
• Utilizing foreign professional
―World’s fastest Green card system
• Income Tax reform
―To encourage female laborparticipation(From FY2017)
Work-style and Labor Market Reform
• Forth Industrial Revolution
（Society5.0）
－Social application of AI, Robot, IOT
• Industrial Structural Reform
• Medical Care Innovation
• Encouraging Investment for
R&D－prioritize public investment in growth-
enhancing areas－support new cutting-edge technologies
Investment for the Future
Japanese stewardship code will be revised in 2017.(PM Abe’s speech in NY (Sep. 2016 ))
The Council for Regulatory Reform started from Sep 2016.
－Cabinet Decision Jun. 2016Submit related Bill in2017
• Introduce a new government-sponsored scholarship
• Shorten the minimum eligible period for receiving pension from 25 to 10 years
Increase Disposable Income(for low income households)
11
- Spurring innovation and investment
- Reward higher R&D investment by providing more tax
deduction (up to 14% of total R&D expenses).
- Extend the deadline for corporate tax filing by three months
to help companies better prepare for dialogue with
investors; and expand deductible management
remuneration to include a salary that is linked to share
price.
- Create a new 20-year tax-exempt Nippon Individual
Savings Account (NISA) scheme to offer more safe
investment opportunities.
- Boosting wages and encouraging women to work more
- Expand the tax incentive for an increase in salary expense
(from 10 to 12% of the increase).
- Raise the income limit for the spousal tax deduction from
1.03 million to 1.5 million.
- Others
- Provide tax exemption when foreign visitors purchase sake
at local breweries.
- Review applicability of inheritance tax for foreign residents
to attract highly-skilled foreign workers.
Deductible amount
Annual income1,500
(Unit: thousand yen)
2,0101,030
Spousal Tax Deduction
380
R&D Tax Deduction
1,410
12
FY 2017 Tax ReformsPromoting Corporate Investment and Wage Hikes
6.28.4
10.413.4
19.724.0
40.0
60.0
0.8 1.1 1.42.0
3.53.7
8.0
15.0
0
4
8
12
16
0
10
20
30
40
50
60
70
2011 2012 2013 2014 2015 2016 … 2020 … 2030
Visitor arrivals(←left)
The value of travel consumption of inbound tourists(right→)
（trillion yen）（million）
Progress of Structural Reforms and Growth Strategy
13
Source : Tokyo Stock Exchange
12.9% 15.0% 16.7% 18.0%21.5%
48.4%
79.7%
0%
20%
40%
60%
80%
2010 2011 2012 2013 2014 2015 2016
+31.3%
Corporate Governance ReformRatio of 1st Section Companies with two or more Independent
Directors
66.5 67.3 67.4 67.7 68.1 68.8 69.3
70.1 70.3 71.1 71.6 71.6
72.3
73.6 74.5 75.2
76.7 76.4 75.9 75.6 75.3 75.3 75.5 75.4 75.8 75.6 75.2 74.7 74.5
73.9 73.9 73.7
85.6 85.7 85.6 85.4 85.3 86.5 86.2
87.1 87.5 87.1 86.6 87.3 87.6 88.1 88.0 88.3
65
70
75
80
85
90
Japan US Sweden
(%)
Women’s labor force participation rate(cross country comparison )
*Age: 25-54 Source: OECD Stat
40 million8 tril. yen
（2020）
60 million15 tril. yen
（2030）
Foreign visitors ・・・Consumption ・・・
Our target
Source: Japan National Tourism Organization
1.0
1.5
2.0
2.5
3.0
3.5
4.0
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Japan U.S.France GermanyU.K.
（％）
Total fertility rate in Japan
1985 1995 2005 2015
1.76 1.42 1.26 1.46
Source: Cabinet Office
Total fertility rate Toward a “Tourism-oriented developed nation”
2008
128.08
2040
107.28
2011
111.11
2040
96.43
1997
86.99
2040
57.87
0
20
40
60
80
100
120
140
80 85 90 95 00 05 10 15 20 25 30 35 40
1998
67.93
2012
65.55 66.48 1997
65.57
2012
62.70
64.40
2002
3.59
2.08
0
5
10
15
20
50
55
60
65
70
80 85 90 95 00 05 10 15
(Source) Ministry of Internal Affairs and Communications, National Institute of Population and Social Security Research
＜Population＞ ＜Labor force＞
Unemployed persons（RHS）
Workers（LHS）
Labor force(LHS)
（million people) （million people）
TotalProjection
15-64years old
（million people）
1980 1980 2000 2000
Over 15 years old
14
(General account, based on initial budgets)
15
Expenditure and Revenue
(Note) Figures may not add up to the totals due to rounding.
(Unit : trillion yen)
FY2017 Initial Budget
34.4
57.7
97.5
0
20
40
60
80
100
1975 80 85 90 95 2000 05 10 15
(trillion yen)
(FY)
Total Expenditure
Tax Revenue
Bond issue volume
(Source) OECD “Economic Outlook 100"(November 2016).
(Note1) Figures represent the general government-based data (including the central/local governments
and social security funds), except for Japan and the U.S. where the figures of the social security funds are
excluded. The following figures include social security funds.
(Note2) FY2017 draft budget data is not reflected.
(Note3) Figures for Japan are adjusted to exclude special factors.
16
General Government Gross Debt
(Source) IMF “World Economic Outlook Database"(October 2016).
(Note) FY2017 draft budget data is not reflected.
General Government Fiscal balance
（CY）
-16.0
-12.0
-8.0
-4.0
0.0
4.0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
（％）
Japan
U.S.
U.K.
France
ItalyCanada
Germany
（CY）
0
30
60
90
120
150
180
210
240
270
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
（％）
Japan
Italy
France
U.K.
U.S.
Canada
Germany
15.1
21.3
24.4
26.3
25.4
39.1
25.0
37.5
36.2
27.0
31.6
35.5
26.2
31.6
46.7
39.4
31.4
37.3
31.1
46.9
30.3
29.7
37.1
50.2
33.7
37.4
40.6
40.5
45.2
44.5
43.1
40.9
69.2
65.9
2.4
2.2
8.3
8.8
11.4
17.2
6.6
8.2
18.0
13.4
10.4
20.1
16.3
1.4
9.4
17.5
12.9
21.1
5.4
22.1
23.3
17.3
5.7
22.4
19.9
20.6
22.0
18.6
19.3
23.4
27.3
1.5
29.4
17.5
23.4
32.7
35.1
36.8
39.1
42.2
44.1
44.4
44.9
45.0
45.9
46.3
47.9
48.1
48.9
48.9
50.1
52.3
52.3
52.5
52.9
54.4
56.0
56.2
57.3
61.2
62.6
63.8
63.8
66.5
68.2
70.7
95.3 0 50 100
34 Mexico
33 Chile
32 United States
31 Switzerland
30 Korea
29 Australia
28 Japan
27 Canada
26 Israel
25 Poland
24 Latvia
23 United Kingdom
22 Slovak Republic
21 Estonia
20 New Zealand
19 Ireland
18 Spain
17 Norway
16 Netherlands
15 Iceland
14 Germany
13 Czech Republic
12 Portugal
11 Sweden
10 Slovenia
9 Greece
8 Hungary
7 Austria
6 Finland
5 Italy
4 Belgium
3 France
2 Denmark
1 Luxembourg
Comparison of OECD Countries
17
General Government Social Security Expenditures
(as a percentage of GDP: 2011)
Tax and Social Security Contributions Ratio
(as a percentage of NI: 2014)
(Source) OECD “National Accounts”, “Revenue Statistics”, EU “Government Finance Statistics”, etc.
(Note1) The data in 2011 is used because no comparable data is available in terms of statistical standards after 2012.
(Note2) Figures represent the general government-based data (including the central/local governments and the social security
funds) except for fiscal balance.
(Source) Cabinet Office, OECD “National Accounts”, “Revenue Statistics”,
(Note) Figures of Iceland are as of CY2013.
32.8
31.3
30.3
28.0
26.8
26.8
26.7
26.6
25.6
25.4
25.2
24.4
24.0
24.0
23.9
23.1
23.1
22.6
22.1
20.4
20.1
18.5
17.6
17.4
17.2
16.4
15.8
14.5
7.9
0 20 40
1 Denmark
2 France
3 Finland
4 Austria
5 Greece
6 Italy
7 Belgium
8 Sweden
9 Germany
10 Slovenia
11 Japan
12 Norway
13 United Kingdom
14 Portugal
15 Netherlands
16 Luxembourg
17 Spain
18 Ireland
19 Hungary
20 Czech Republic
21 Poland
22 Iceland
23 Slovak Republic
24 Estonia
25 United States
26 Turkey
27 Israel
28 Switzerland
29 Korea
18
Breakdown by JGB and T-Bill Holders (Sep. 2016)
Note.1: "JGB" includes FILP Bonds. "T-Bill" is the sum of "Treasury Bills (TBs)" and "Financial Bills (FBs)"
with a maturity of 1 year or less and TBs and FBs have been jointly issued since February 2009.
Note.2: "Banks, etc." includes Japan Post Bank, "Securities investment trust " and "Securities Companies".
Note.3: "Insurance and Pension etc." includes Japan Post Insurance, Public Pensions, Pension Funds, etc.
Source: Bank of Japan “Flow of Funds Accounts (Preliminary Figures)”
Insurance and
Pension etc.
28.0%
Banks etc.22.4%
BOJ
37.9%
Household
1.2%
Foreigners
10.3%General Government (ex Public Pensions)
0.2%
Total \1,091 trillion
(≒$9.3 trillion)
JGB and T-Bill Holders
Total \971trillion
(≒$8.3 trillion)
JGB Holders
BOJ
36.7%
Banks etc.24.7%
Insurance and
Pension etc.
31.3%
Household
1.4%
Foreigners
5.7%General Government (ex Public Pensions)
0.2%
T-Bill Holders Total \120 trillion
(≒$1.0 trillion)Foreigners
47.4%
Insurance and
Pension etc.
1.9%
BOJ
47.3%
Banks etc.3.4%
-0.4
-0.2
0
0.2
0.4
0.6
0.8
1
1.2
1.4
2016/6/23Brexit
（％）（％）
2016/7/29Announcement of
conducting "Comprehensive Assessment"at the next
MPM
2016/1/29QQEN 2016/11/8
U.S. presidential
election
2016/9/21QQE with YCC
40year
30year
20year
10year
5year
2year
JGB yields
19(Source) Japan Bond Trading Co.
-90
-80
-70
-60
-50
-40
-30
-20
-10
0
15/1 15/7 16/1 16/7 17/1
（bp）
1 year
2 year
"（↑）"shows that the outlook is positive."（↓）"shows that the outlook is negative.
(Long-term debt denominated in home currency on 24 Feb 2017)
List of Major Countries‘ Sovereign Ratings Dollar/Yen Basis Spread
(Source) Bloomberg
20
Moody’s S&P FitchAaa/AAA U.S. Germany U.S.
Germany Canada GermanyCanada Canada
Aa1/AA+ U.K.(↓) U.S.Aa2/AA France U.K.(↓) U.K.(↓)
Korea France FranceKorea
Aa3/AA- China(↓) China(↓) Korea
A1/A+ Japan Japan ChinaIreland
A2/A Japan(↓)Ireland
A3/A- Ireland(↑)
Baa1/BBB+ Spain SpainItaly(↓)
Baa2/BBB Italy(↓)Spain
Baa3/BBB- ItalyBa1/BB+ Portugal Portugal PortugalBa2/BB
Ba3/BB-
B1/B+
B2/B
B3/B- GreeceCaa1/CCC+
Caa2/CCC GreeceCaa3/CCC- GreeceCa/CC
C
SD/RD