A top economic advisor to Prime Minister Shigeru Ishiba has issued a stark warning about Japan’s burgeoning national debt, suggesting that a credit rating downgrade might be necessary to jolt the government into action, Bloomberg reports.
Mana Nakazora, a credit analyst on a government panel and chief credit strategist at BNP Paribas Securities, voiced her concerns in an interview with the news agency on Monday.
Nakazora’s comments come as Ishiba seeks parliamentary approval for a ¥13.9 trillion ($92 billion) supplementary budget – marginally larger than last year’s despite improved economic conditions – requiring ¥6.69 trillion in new bond issuance. She criticized the current fiscal policy as a “popularity contest,” prioritizing short-term gains over long-term fiscal responsibility.
While acknowledging that a credit rating downgrade is not imminent, Nakazora warned of the potential for a rapid decline once the process begins. She specifically criticized the government’s decision to reinstate utility subsidies as part of the stimulus package, arguing that aid should be targeted toward those most vulnerable to inflation.
The additional budget, Nakazora believes, renders Japan’s goal of achieving a primary balance surplus by fiscal year 2025 virtually unattainable. Instead of setting a new target, she recommends maintaining the current goal, even if it requires extending the deadline.
Despite the worsening fiscal outlook, Nakazora anticipates that the Bank of Japan (BOJ) is poised to raise interest rates in December. This aligns with comments from BOJ Governor Kazuo Ueda last week and a Bloomberg survey showing over 80% of economists predict a rate hike by January. However, Nakazora suggested that the BOJ might delay until January, given the recent fiscal loosening and uncertainty surrounding US policies under President-elect Donald Trump. Trump’s potential policies, such as tariffs and tax cuts, could create market volatility, providing an incentive for the BOJ to wait and assess the situation.
Nakazora concluded by emphasizing the urgent need for Japan to confront its debt challenges, drawing a historical parallel to the arrival of Black US naval ships in the 19th century, an event that spurred significant societal change.
