Intended to calm market sentiment? Takaichi Sanae announces that Japan will achieve its first basic fiscal surplus in 28 years in 2026

The Zhitong Finance App learned that Japanese Prime Minister Sanae Takaichi said on Friday that the country's basic fiscal balance is about to achieve its first surplus in 28 years. This statement is clearly intended to ease market concerns about its aggressive fiscal spending stance.

According to information, Japan's cabinet meeting on Friday voted to pass a record initial government budget for the 2026 fiscal year, which amounts to 122.3 trillion yen (about 782 billion US dollars). After the meeting, Sanae Takaichi told reporters: “The initial budget finalized this time will enable the central government to achieve a basic fiscal surplus for the first time since 1998. The budget we created was aimed at boosting economic vitality while balancing fiscal sustainability, and achieved a balance between the two.”

Achieving a basic fiscal surplus has been the goal of the Japanese government for more than 20 years. This core financial indicator measures the difference between government revenue and expenditure after excluding interest expenses on debt. Achieving this goal will provide strong support for the assertion that the Japanese government is actively improving the country's financial situation.

Although Sanae Takaichi previously proposed that more dimensional indicators should be introduced to evaluate fiscal health, the achievement of a basic fiscal surplus this time has undoubtedly added persuasiveness to define expansionary fiscal policies as “responsible measures.”

According to data disclosed by Japan's Ministry of Finance, the central government's basic fiscal surplus is expected to reach 1.34 trillion yen in the new fiscal year budget to be implemented in April 2026. The official Cabinet Office data is expected to be released next month after incorporating factors such as local government data.

In recent years, local governments in Japan have continuously achieved basic fiscal surpluses. Based on this estimate, according to the Cabinet Office's statistical caliber, the basic fiscal surplus target at the national level is likely to be achieved. However, if the Cabinet of Ministers introduces a supplementary budget in the new fiscal year, this situation may change.

Currently, Japanese treasury yields continue to rise (partly due to market concerns that this heavily indebted country's spending may get out of control), and Takaichi Sanae has been trying to convey her commitment to fiscal discipline to the market. Last week, the yield on the benchmark 10-year Treasury climbed to 2.1%, a 27-year high.

The recently approved budget highlights the policy orientation of Takaichi Sanae's willingness to use fiscal spending to leverage economic growth. It is worth noting that although the scale of fiscal expenditure has increased, thanks to record tax revenue, the government's demand for new debt issuance has been effectively curtailed, and the scale of treasury bond issuance for fiscal year 2026 has been reduced compared to this fiscal year.

Furthermore, the Cabinet of Ministers is gradually downsizing the central position of basic fiscal surpluses in the fiscal evaluation system, and is instead focusing on reducing the debt-to-gross domestic product (GDP) ratio. In an inflationary cycle, this goal is relatively less difficult to achieve.

Although the Japanese government has not abandoned basic fiscal surpluses as a measure of fiscal discipline, Japan's Finance Minister Katayama Satsuki pointed out that it is examining this indicator over a multi-year span rather than a single annual result.

According to reports, the Japanese government initially set the basic fiscal surplus target point for the 2011 fiscal year, but over the next ten years, this period was extended again and again.