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Japan pushes balanced budget target to 2025, sets interim goal

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Japan pushes balanced budget target to 2025, sets interim goal

Japan's government will give itself five more years, until 2025, to balance its budget, but it set an interim target to review progress in fiscal improvement, Reuters reported, citing The Nikkei newspaper.

The move ramps up pressure on the Bank of Japan to maintain its loose monetary policy, the report said.

The government will aim to achieve a surplus in the primary budget, which excludes debt service and new bond sales, by the fiscal year ending in March 2026. The new deadline will be set in June.

The interim target, with a deadline of fiscal 2021, would require the government to cut the ratio of debt to GDP to about 180%, lower the budget deficit to 1.5% of GDP and reduce the ratio of fiscal deficit to GDP to 3% or lower, Reuters said, citing a draft seen by The Nikkei.

The targets should be achievable and enable Prime Minister Shinzo Abe to boost fiscal spending to cushion the economic impact of a scheduled sales tax increase in 2019, according to the report.

The fiscal deficit target would also make it more difficult for the Bank of Japan to end its ultra-easy monetary policy since higher interest rates would widen the deficit, the report added.

Japan, which has the heaviest public debt among major industrialized nations, will need to hit these new targets while also keeping in check the rising social welfare costs related to its rapidly aging population.

Japan had originally aimed to achieve a budget surplus in fiscal 2020, but Abe shelved that goal in 2017 when he called a snap election and vowed to revamp the country's social welfare system.

In January, Cabinet Office projections showed that a primary budget surplus will be met in fiscal 2027, suggesting spending reform would be needed to fast-track the target to fiscal 2025.

A ruling party panel led by policy chief Fumio Kishida called for more discussions to potentially slash spending and raise taxes amid concerns over Japan's fiscal condition, Reuters said.

"It's hard to restore fiscal health unless Japan undergoes reform not just on spending but revenues reflecting social and economic developments," the panel said in a proposal May 22.