Volkmar Baur at Commerzbank argues that market concerns over Japan’s fiscal stance are exaggerated, even after a new 3.1 trillion JPY supplementary budget funded largely by debt.
He highlights that net debt ratios are far below gross figures and projected to decline, leaving Japan in a better position than most G‑10 peers despite near‑term pressure on the Yen
Fiscal expansion not a structural threat “Japan’s fiscal situation remains a further drag on the JPY. Less than two months after the Takaichi administration passed its budget for fiscal year 2026 (which began on April 1) in Parliament, a supplementary budget was submitted last week to provide relief to households amid rising energy prices. The supplementary budget is expected to amount to approximately 3.1 trillion JPY, which corresponds to roughly 0.5% of Japan’s gross domestic product.” “When the initial discussions and negotiations on this topic began, the market reacted with repeated displeasure and responded to the plan with a weakening of the JPY.
In our view, however, these reactions are exaggerated. While Japan does have a very high gross debt-to-GDP ratio of 206.5% according to the International Monetary Fund (IMF), the net debt-to-GDP ratio – that is, after deducting the liquid assets held by the government – stands at only 136%.” “Furthermore, the International Monetary Fund expects both gross and net debt in Japan to fall over the coming years. This stands in contrast to the US and most European countries, where a continuous rise or, at best, stagnation is expected.