Japan's new fiscal plan likely to reduce downside risks to economic growth

The downside risks to Japan's economic growth are likely decreased with the new revised fiscal plan, and the chance for a complete exit from deflation increased. 

The "relief effect" having proved ineffective, it was unrealistic to stick to a policy philosophy that aims to tighten fiscal policy and increase taxes in order to achieve a primary balance surplus by FY2020. It is against this backdrop that the policy philosophy likely changed. 

The GDP growth rate is no longer an assumption but the main goal, is "3% nominal GDP growth and the secondary objective is primary balance surplus by FY2020. The underlying principle of the plan "There is no fiscal soundness without economic recovery" reflects this concept. 

It is a shift from the previous fiscal plan, i.e. "3% nominal GDP growth is assumption, primary balance surplus by FY2020 is objective". Under the new fiscal plan, the downside risk to economic growth due to the tight fiscal policy has decreased. 

"Therefore, the possibility of a complete exit from deflation and revived economic growth has increased substantially", says Societe Generale.