The Takaichi administration's Basic Policy emphasises both fiscal sustainability and economic growth and includes stronger coordination between the government and the Bank of Japan. The market saw higher long-term interest rates and a weaker yen, but the key issue is how the policy shift should be interpreted.
It has been pointed out that the phrase “fiscal consolidation” was deleted from the Basic Policy and replaced with “fiscal sustainability,” prompting a broad perception that the policy placed less emphasis on traditional fiscal discipline. However, the article treats this replacement as a shift with significance beyond a mere difference in wording.
The policy places a stable decline in the government debt-to-GDP ratio at its core and proposes managing public finances using multiple indicators, including the economic growth rate. Its stated aim is to review the previous approach of prioritising a primary balance surplus in each fiscal year and to consider growth and fiscal sustainability together.
The article also refers to concerns that rushing to improve the fiscal balance could restrain the economy and slow tax revenue growth. It presents the view that securing fiscal soundness through economic growth should be prioritised. The experience of nominal GDP and tax revenue temporarily expanding under expansionary fiscal policy after COVID-19 is cited in support of the importance of growth-oriented policy management.
Regarding the Bank of Japan, the policy explicitly states that the central bank is expected to work closely with the government in line with Article 4 of the Bank of Japan Act to achieve a virtuous cycle of wages and prices. While this emphasises government–Bank of Japan coordination, it is also interpreted as not indicating intervention in specific monetary policy decisions.
The Takaichi administration's previously stated commitment to the concept of a dual mandate was reaffirmed, with emphasis placed on achieving both strong economic growth and stable price increases. The intention appears to be to clarify the division of roles between fiscal and monetary policy while improving consistency across overall policy.